Under insurance is the growing pandemic of insurance. Covid has changed the world in many ways and the impacts on small business and the household budgets is effecting how people view insurance. The brunt of financial stress due to the perfect storm of a pandemic, inflation and climate events has created the perfect conditions for and un-insurance or under-insurance trap as household search for way to reduce costs. But there is a hidden reality of not having your house sum insured set accurately.
Lets explore why under insurance is more than just a buzz word
Under-insurance and un-insurance are words we see used often when talking to the broking community. It's not something our customers are used to hearing about for the most part because premium renewals always include a small increase to the SUM insured to keep up with inflation and CIP increases, so we are not caught out by the slow creep of increasing costs for replacing our home.
But current market climates have changed all that!!
The whole housing sector has changed significantly in the last 12 month. You watch the news, so you know there is a housing affordability crisis. You know we are seeing significant increases in house values with some areas jumping as much as 30% in cost to purchase a house in less than 12 months (6 in some regions). What you may have missed is the more significant cost increase in building materials. Builders are seeing increase cost of materials from 20-60%. Largely due to a lack of supply as the overseas resources decreased due to covid slowing the entire worlds ability to produce said materials. The ripple effect from 2 years of shutdowns world wide is now evident in the supply chain of most things - building supplies are no exception.
The shortages of materials accompanied with some severe weather events, that resulted in mass flooding across 2 states, has left the building industry understocked, understaffed and unable to keep up with demand. All of that means, you guessed it, that demand has well exceeded supply and the cost for repairs, re-builds and new builds are left soaring out of control. This is where under - insurance starts to rear its nasty self.
Changes in your SUM insured need to be made to accommodate increased costs.
The extremely swift increase in build cost have left most of us unprepared for catastrophe when it comes to claim time. 12 months ago if it cost $350K to build a 4 bedroom house, in todays market will cost double that. Yes you read that correctly DOUBLE. Even if you suffer a partial loss eg as in a meter of water flowing through the house, you will find that repairs are much higher now then they were 12 months ago.
Your SUM insured needs to reflect this market change or you will be caught short come claim time. So If your SUM insured is still $350K and your house burns to the ground you will no longer have enough money in a valid insurance claim to rebuild an equivalent house to the one that was just completely destroyed. That is the reality of under insurance. You will be left out in the cold when it comes to rebuilding your house to the same standard of what you had prior to the claimable event.
So how do you avoid getting caught out??
Thankfully that's an easy fix. Ask your broker for a sum insure calculator to be done on your property prior to renewal, so you can be sure that you are adequately covered. You will pay extra premium, but its better to have the right cover and not fall victim to lack of awareness of underinsurance.