Australia Facing Underinsurance Crisis Due to Rising Costs and Affordability Challenges

Australia is facing an underinsurance crisis as rising costs and affordability challenges are pushing homeowners into a vulnerable position, potentially costing them hundreds of thousands of dollars when disaster strikes. According to the Insurance Council of Australia, 13.1 million homeowners and householders in Australia had an active general insurance policy in 2023. However, a new analysis by MCG Quantity Surveyors revealed that Australian residential properties are underinsured by an average of 18 percent.

The combination of fast-rising construction costs, unreliable automated insurance calculators, Covid-related supply chain issues, manufacturing problems, and a lack of available labor is contributing to this underinsurance crisis. Many Australians are struggling to afford insurance premiums due to the increasing cost of living, forcing them to skimp out on coverage or cancel expensive policies altogether.

Director of MCG Quantity Surveyors, Marty Sadlier, warned that Australian property owners are skating on very thin ice, with many households at risk of being left with a significant financial shortfall in the event of a disaster. Insurance premiums have skyrocketed due to the increasing value of homes, inflation pushing up building and supply costs, and the rising cost of doing business for insurers.

Since the Black Summer Bushfires in 2019-20, insurers have paid out $19 billion in claims from significant events, impacting everyone’s insurance costs. Mr. Sadlier emphasized the importance of accurately assessing and updating property insurance values regularly to ensure adequate coverage.

To address the underinsurance crisis, the Insurance Council of Australia suggested that customers shop around for insurance policies that suit their needs, simplify their coverage to only include essential assets, and consider increasing their excess payment in the event of a claim. Government intervention and regulation may also be necessary to prevent insurers from quoting exorbitant premiums that could leave Australians financially vulnerable.

In conclusion, as natural disasters become more frequent, it is essential for homeowners to ensure they have adequate insurance coverage to protect themselves from financial ruin. Failure to do so could leave many Australians in a precarious situation, unable to afford the repairs or replacement of their homes in the face of a disaster.