Is there an insurance disaster looming?

A leading quantity surveying firm has said Australian property owners are at immediate risk of a massive but preventable insurance blow.

MCG Quantity Surveyors said that a surge in construction costs and labour during COVID has put homeowners at extreme risk of underinsurance, which means some homeowners could be just one disaster away from financial ruin.

MCG director Marty Sadlier said that property owners could be left hundreds of thousands out of pocket should an unfortunate event have them calling their insurance provider.

“Unfortunately, most will only discover they are woefully underinsured when it’s too late,” he said.

Mr Sadlier said construction and labour cost increases over the past six months have been extraordinary.

“Our estimates indicate the cost of building an average Aussie home has risen by over 10 per cent in the past six months,” Mr Sadlier said.

“Given the median construction cost for homes is around $485,000 that’s a price rise of over $48,500 in half a year.

“But this is just an average, many properties have construction costs of closer to $1 million.

“In addition, the average construction program on these sites have increased by as much as an additional 16 weeks due to material and trade shortages.

“As such, there are plenty of cities and towns where real costs have gone up by 15 per cent or more for the end user once these delay costs are accounted for.

“Also, this only allows for construction costs, insurance is also supposed to cover additional outlays such as professional fees, council charges levees and even emergency accommodation, all of which add to the end amount.”

Mr Sadlier said underinsurance was already rife across the nation but current conditions are making this far worse.

“The Insurance Council of Australia are quoted as saying that prior to the pandemic, 83 per cent of property investors were already underinsured,” Mr Sadlier said.

“But given the recent hikes in materials and labour costs, I’d be surprised if we weren’t closer to 100 per cent of owners at risk.”

Mr Sadlier said property owners can undertake a three-step solution to ensure they’re adequately covered and not disadvantaged.

“Number one you must update your property’s insurance value regularly, at least very year.

“Secondly, don’t use ‘online insurance calculators’ to assess your property’s replacement cost. We’ve seen real-life instances where online calculators have been more than 65 per cent below the true replacement cost of a dwelling.

“Keeping up to date with the construction costs requires diligence and accuracy.

“You should only use professionals, like certified quantity surveyors, to accurately confirm replacement values for insurance purposes.

“Finally, shop around for insurance options, a hike in value can mean an increase in your premium.

“Make sure you use a reputable insurance broker to confirm you’re paying the right price for your insurance.”