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Australian property owners could be worse off to the tune of hundreds of thousands of dollars for being underinsured.
New research from MCG Quantity Surveyors has revealed homes across Australia could be underinsured by as much as 66 per cent.
With bushfires raging and flood season upon us, this revelation is crucial, director Marty Sadlier said.
“This epidemic of underinsurance could prove totally shattering, and is due almost entirely to the ongoing use of web-based insurance calculators,” he said.
“Worst of all, these erroneous calculators continue to be recommended by insurance companies and even government departments, despite long-term evidence of their failings.”
These calculators often exclude fundamental components of insurance that amounts to thousands more lost dollars, Mr Sadlier said.
“The problem is compounding after decades of being ignored, despite warnings across the insurance and construction industry.”
MCG came to this conclusion by working out what it would cost to build a new home in Airds, NSW. Including the cost for demolition, removal of site debris, allowance for cost escalation and consultant’s fee, it’s found the price was $668,559.
When it ran the same information through five popular web-based calculators which are recommended by insurance companies, it found a range in the results.
“The lowest-value calculator assessed the insurance value at $226,160 — or 66 per cent below the needed amount — while the highest web-based estimate was $535,000, which is still 20 per cent underinsured,” the report said.
“Not only do these calculators tend to underestimate construction costs overall, most don’t include amounts for demolition, debris removal, cost escalations and consultant’s fees.”
Mr Sadlier said this example is not an isolated outcome, and if these results were expanded across the country, the outcome would be devastating for home owners in need.
“Given the extreme results we’ve observed, any home owner relying on online calculators could be in dire financial straits after a major insurance event,” the director said.
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