Is Underinsurance Actually on the Rise in Australia?

With the soaring cost of rent and interest rates also driving grocery and petrol prices through the roof nationwide, it’s safe to say that insurance considerations (aka, protecting our belongings or bumping up coverage on our car or home) just isn’t a top priority when compared to other rising weekly and monthly expenses. 

But, with wild weather events, ever-increasing living expenses and the ever-present housing crisis defining the mood of our moment, underinsurance is quietly growing into a big problem here in Australia. And it’s not just for the big-ticket items like home or car insurance – we’re also talking about the gaps that sneak in with renters, business owners, and even health insurance. 

So are we more underinsured than ever before? Let’s unpack that question by assessing some of the key factors that are contributing to underinsurance risks across Australia.

Everyday Aussies Are Skipping the Essentials – Even the Affordable Ones

Among the most telling signs that underinsurance is on the rise is the number of people who aren’t covering the basics. Take renters insurance, for securing contents for tenants in their rental properties, for example. Renters insurance is designed to be one of the most streamlined and affordable types of insurance cover available, yet there are surprisingly many renters who either don’t know it exists or don’t think it’s worthwhile. This type of policy will cover everything from your laptop and TV to your prized sneakers in the event of fire, theft or even water damage from a burst pipe, making it highly worthwhile for renters who are looking to protect their personal assets while living in rental properties.

What’s really going on here is a mix of misinformation, cost-cutting, and that classic Aussie she’ll-be-right attitude. When you start feeling pressure from the cost of living, insurance always seems like something you can do without, until the worst happens. The issue is that when people are opting out even of the low-cost, high-value covers, it’s symptomatic of a wider trend: Aussies are playing with fire when it comes to our protection, more than they know.

The problem is, when people skip even the low-cost, high-value covers, it’s a sign of a broader trend: Aussies are rolling the dice on their protection more than they realise.

Homeowners Are Falling Behind on Rebuilding Costs

You’d assume we’d all be on high alert when it comes to protecting our homes, particularly as climate events like floods, storms and bushfires continue to make headlines across the country like never before. But the reality? Thousands of Aussies are still severely underinsured. Why? Well, for starters, rebuilding costs have skyrocketed – labour shortages, material price hikes, and supply chain problems have all pushed them into the stratosphere.

The average homeowner hasn’t updated their policy to reflect these new rebuild values. So if your home was valued for a rebuild in 2019, you’re probably still under the mark in 2025. The gap can be in the hundreds of thousands of dollars, and most people won’t find out until it’s time to file a claim. It’s a pretty scary thought, especially when you realise a huge number of people are still using inaccurate online calculators that haven’t adjusted for inflation or differences in construction costs. 

Insurance Literacy in Australia is Still Low

A lack of financial literacy is also contributing to confusion surrounding insurance coverage across Australia. It’s more than likely that a lot of Australians didn’t learn about insurance during their school-aged years. But this lack of knowledge has a real-world impact. Plenty of people assume they’re fully covered when they’re not. Or, they don’t really understand what a policy covers (or doesn’t) until it’s too late.

This gap in understanding is a big reason underinsurance is on the rise. If you don’t understand what your policy actually covers, how can you really determine if it’s adequate? This rings especially true for younger Australians, a generation that’s renting, freelancing, and side-hustling, and perhaps not even considering things like car insurance, liability cover, or contents insurance until it’s a little too late.

Thankfully, the Victorian Department of Education is aware of this financial literacy gap and is taking efforts to incorporate financial literacy skills-building opportunities for public schools statewide, including right here in Geelong. These initiatives are helping ensure that younger generations of Australians have the fiscal awareness they need to enjoy improved financial security as working adults.

Small Biz Owners Are Seriously Exposed

Side hustles, pop-ups, online businesses – they’re quite literally everywhere in today’s gig economy. Australia is full to the brim with creative innovators, especially with the impact of the pandemic resulting in lots of us needing to pivot. But here’s the issue: a huge percentage of that small business gold runs uninsured, or barely insured.

From market stall gear, client data, stock, or even legal liability, many small business owners don’t realise how vulnerable they are. Business insurance isn’t one-size-fits-all, but plenty of people grab a basic policy and assume they’re sorted. Others avoid it altogether, believing they are too “small” to justify the expense. Sad to say, even a little mishap (say, someone trips at your market stall, or a fire wipes out your stock) can wipe the slate clean if there’s no decent cover in place.

Natural Disasters Are Changing the Game Fast

We can’t talk about insurance without discussing climate considerations. From east coast floods to fires in WA, natural disasters have forced insurers to reconsider how they operate in the face of more frequent and severe incidents. Premiums have shot up in high-risk areas, and in some cases, insurance has become unaffordable, or even unavailable.

The result? Aussies either downgrade their cover in order to make premiums manageable or they drop it altogether, particularly if they are already struggling financially. But in disaster-prone areas, this is an incredibly risky move. Communities hit by back-to-back events are already struggling to rebuild, and underinsurance means the recovery process becomes even slower and more devastating.

The “Set and Forget” Mentality is Making It Worse

Finally, the sneakiest reason for underinsurance is not so much about people dodging cover altogether: it’s consumers who think they’re covered but haven’t checked in years. They bought a policy years ago, ticked a few boxes online maybe, and now it just auto-renews year after year, no thought required. But life changes. So does the value of your stuff, the risks around you, and what you actually need covered.

If you’ve taken a pay cut, shifted homes, acquired new gear, or adopted a completely new lifestyle (hello, work-from-home life), your old, dusty cover probably no longer cuts it. It’s time to reassess for real. The ‘set and forget’ mentality is one of the major reasons Aussies are under-insured without even knowing it, and it’s more dangerous than ever. 

So, Is Underinsurance on the Rise? Yes, and It’s Not Just About Money

Underinsurance in Australia isn’t just about money. It says something about how we’re living right now in the midst of our nation’s ongoing cost of living crisis. And while the skyrocketing cost of living has a lot to do with this lapse, so does our understanding (or lack thereof) of what protection actually looks like.

The good news? There is a way to fix it, and it doesn’t cost a fortune. It starts with knowing what you have, what you actually need, and staying a little more switched on when it comes to evaluating your insurance policies. A quick revisit every 6 to 12 months, a few phone calls, and making the effort to ask the right questions goes a long way.  And if in doubt, speak to your insurance providers for more information.

Because in a time where the world feels less predictable than ever, peace of mind shouldn’t be an optional extra.