Research by MCG Quantity Surveyors has uncovered the fact that many home-owners do not have enough insurance on their property if a disaster was to occur.

Many of these home owners are under-insured by up to 66 per cent, which could lead to devastating financial losss in the event of a claim.

Many people could be out of pocket by hundreds of thousands of dollars.

At a glance:

• Home owners could be up to 66 per cent under-insured.
• Research shows online calculators are causing home owners to not take on enough insurance.
• Little has been done to take these online calculators to task.

Director of MCG Quantity Surveyors, Marty Sadlier, said the analysis was particularly crucial given bushfire and flood season is upon us. 

“This epidemic of under-insurance could prove totally shattering, and is due almost entirely to the ongoing use of web-based insurance calculators,” said Mr Sadlier. 

“Worst of all, these erroneous calculators continue to be recommended by insurance companies and even government departments, despite long-term evidence of their failings.” 

Mr Sadlier said not only are the calculators constantly in error, but these oversimplified tools exclude fundamental components of insurance that amount to thousands more lost dollars. 

“The problem is compounding after decades of being ignored, despite warnings across the insurance and construction industry.” 

MCG conducted a review of web-based calculators by comparing them to a detailed professional cost estimation. 

“We prepared a report for a new home in Airds, NSW and calculated the construction cost plus additional sums for demolition, removal of site debris, allowances for cost escalations and consultant’s fees to be $668,559," said Mr Sadlier.

“This figure represents a total insurance value.” 

MCG then ran the same information through five popular web-based calculators as recommended by insurance companies – and the variances were staggering. 

“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," said Mr Sadlier. 

“Not only do these calculators tend to under-estimate construction costs overall, most don’t include amounts for demolition, debris removal, cost escalations and consultant’s fees.” 

Mr Sadlier said their example house was not an isolated outcome in his company’s experience, and if these results were extrapolated across the population, the outcome would be devastating for homeowners in need. 

“Given the extreme results we’ve observed, any homeowner relying on online calculators could be in dire financial straits after a major insurance event.” 

MCG said the problem of underinsurance has been decades in the making, but there’s been minimal progress in remedying the situation. 

“Unfortunately, little has been done to take these calculators to task and, in fact, customers are being increasingly advised to use them by insurance companies and even government departments such as moneysmart.gov.au”

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