The Risk of Underinsurance – the devil is in the detail!
Underinsurance is very common in Australia. When the unexpected occurs and an insurance claim is required, things can often turn pear shaped. If underinsured, it can make things rather difficult (or near impossible) for life to resume to the standard of living prior to the claim. Many Australians unfortunately do not review or update their insurance policies, and often assume their current policy is adequate. Whether it’s rebuilding their home, commercial property or replacing belongings to the same standard if their property is badly damaged or destroyed – the devil is in the detail of the policy when it comes to the outcome of the claim.
Our Insurance Account Manager, Cameron Stewart has some key advice for our clients. Unfortunately, Cameron witnesses the effects of underinsured individuals. However, more frequently, Cameron highlights below the significant rise in underinsured commercial properties – which he is witnessing firsthand and wants to help our clients be proactive!
Recent statistics released by the Insurance Council of Australia indicate that a significant portion, estimated between 70% to 80%, of commercial properties across Australia are underinsured. While we, as your broker, diligently seek out quality insurance products at competitive premiums, it’s crucial to note that we cannot retroactively resolve underinsurance issues should they arise. Every commercial insurance policy in Australia incorporates underinsurance clauses, commonly referred to as co-insurance. In the unfortunate event of underinsurance, the insurance company reserves the right to proportionally reduce your claim payout.
For commercial properties, obtaining a thorough valuation of your property by a qualified quantity surveyor is highly recommended. These valuations offer an accurate depiction of the rebuilding costs and serve as compelling evidence to contest any potential underinsurance claims. Additionally, many insurance companies may consider waiving the co-insurance clause upon submission of such a valuation.
Typically, the initial outlay of a valuation is approximately $660, with the option to update it every 3 to 4 years at a reduced rate, usually around half the initial cost, provided the fundamental risk factors remain unchanged. Our Insurance Team at Highview has trusted specialists that we refer to and recommend for a comprehensive valuation of your assets, effectively eliminating concerns regarding underinsurance. Should you be interested to action this, please get in touch and we can facilitate the right specialist based on your needs.
So, now what?
Simply put, underinsurance is when you don’t have enough insurance to cover the replacement value of the items you’re insuring. For most people who find themselves underinsured it’s usually because they haven’t properly calculated the current replacement value of their property and belongings.
One of the best ways to prevent underinsurance is to accurately track and calculate the cost of your assets.
Some common causes for underinsurance
Guessing how much it would cost to repair, rebuild or replace property and contents – our top tip to prevent this for Domestic Insurance is to use a building insurance calculator and a contents insurance calculator. The Insurance Council of Australia has some helpful online calculators here.
Not accounting for upgrades to your home and belongings – it’s been a time of change for many, with Australians investing in renovations, new furniture, and upgraded appliances. It’s very common to forget to update your insurance following upgrades to home or contents, but this can bite you if you need to make a claim.
Increased building costs – this may be caused by the need to meet updated building codes, building on difficult sites, or rising labour and materials costs.
Supplementary costs – this may include the cost of demolition, clean-up, asbestos removal, council applications, architect, and surveyor services, and even the cost of temporary accommodation during a rebuild.
Not accounting for all your assets – you probably own a lot more than you realise. What about the contents of your garden shed like the lawnmower and your tools? And what about your wardrobe? Six pairs of sensible shoes, three pairs of stilettos, and your expensive running shoes. Would your insurance cover all of this if you had to replace it all?
The key is tracking and calculating – the key to being covered and having enough insurance to repair, rebuild or replace is accurately calculating the value of your property and belongings. Give it a try – you’re likely to be surprised.
Article prepared by Cameron Stewart, Insurance Account Manager
Highview Accounting & Financial
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Source: https://insurancecouncil.com.au/