Your property is insured. But is it insured for the right amount? Most Australians would be surprised — and not pleasantly — by the answer.
Underinsurance is one of the most common financial risks facing property owners in Australia today, and one of the most avoidable. It doesn’t usually happen because someone was careless. It happens because sum-insured figures drift, construction costs rise, improvements go unnotified, and policies renew without anyone really looking at the numbers.
The problem stays invisible until there’s a claim. Then it becomes very visible, very quickly.
What under-insurance actually means
Under-insurance simply means your sum insured — the maximum amount the policy will pay — is less than it would actually cost to rebuild, replace, or restore what you’ve lost.
For residential properties, the most common issue is a rebuild cost that has grown well beyond the insured value. For commercial properties, it can extend to plant, equipment, stock, and business interruption periods that no longer reflect reality.
This matters because most insurance policies include a mechanism — sometimes called an averaging clause or co-insurance condition — that reduces your claim payout proportionally if you’re under-insured at the time of loss. Even for a partial loss.
How it works: Your building has a true replacement value of $3.6M but is insured for $2.4M — 67% of its value. A storm causes $900,000 in damage. Rather than receiving $900,000, the insurer applies the co-insurance ratio and pays approximately $600,000. The remaining $300,000 is your problem.
This outcome isn’t the insurer being unfair. It’s the policy working exactly as written. The problem was created years earlier, when the sum insured stopped keeping pace with reality.
Why it's more common than people think
Construction costs in Australia increased sharply between 2021 and 2024 — driven by labour shortages, supply chain disruption, and materials inflation. This doesn’t look like dissipating. Properties that were adequately insured five years ago may be significantly underinsured today, simply because the cost to rebuild them has grown faster than their sum insured.
Other common causes include:
- Policies renewed year after year using the same sum insured, with only an automatic index increase applied — which often doesn’t reflect actual cost movements
- Renovations, extensions, or upgrades that weren’t notified to the insurer and therefore aren’t reflected in the insured value
- Clients who base their sum insured on market value or purchase price rather than replacement cost — which are very different figures
- High-value contents collections — art, jewellery, antiques — that have appreciated significantly but were last scheduled years ago
- Commercial properties where tenant fit-outs, equipment, or stock levels have grown beyond the original policy parameters
For high net worth clients with prestige homes, architecturally designed properties, or heritage buildings, the risk is amplified. These properties are more expensive to rebuild on a per-square-metre basis and require specialist trades and materials that can’t simply be sourced from standard supply chains.
What an adequate review looks like
At Rumble Insurance, we treat sum-insured reviews as a substantive part of the renewal process — not a formality.
For residential and prestige property clients
We review the insured value against current building cost benchmarks and, for complex or high-value properties, recommend a formal replacement cost assessment by an independent quantity surveyor or specialist valuer. We also review contents schedules, particularly for items that may have increased in value — jewellery, fine art, wine, watches, and collectibles.
For SME and commercial property clients
We review building values, contents, plant and equipment, and business interruption (BI) indemnity periods. BI underinsurance is a separate and equally significant risk — if your indemnity period is 12 months but a major loss would realistically take 18 months to recover from, your policy has a gap that won’t become apparent until you’re in the middle of a claim.
Policy wording matters too
Not all policies respond the same way to under-insurance. Some include index-linked provisions, agreed value options, or ‘reinstatement as new’ conditions that provide a degree of protection. Others apply co-insurance strictly. We review wording carefully and factor this into our coverage recommendations.
Questions worth asking at your next renewal
- When was my sum insured last independently verified — not just index-adjusted?
- Have I made any improvements, renovations, or additions that aren’t reflected in the current policy?
- Has the value of my contents, collections, or equipment changed significantly in the past few years?
- Does my policy include co-insurance or averaging provisions, and if so, do I understand how they work?
- For commercial properties — does my business interruption indemnity period reflect how long it would actually take to recover from a major loss?
If you’re not certain of the answer to any of these, that’s worth a conversation.
Underinsurance doesn’t announce itself. It sits quietly inside a policy document and only shows up when it’s too late to do anything about it. The good news is that it’s entirely preventable — and addressing it now is straightforward compared to dealing with it at claim time.
Rumble Insurance works with HNW individuals, property owners, and SME clients across Australia to ensure their programmes reflect the assets they’re actually protecting. If it’s been a few years since your coverage was properly reviewed, now is a good time.