As Australians face another bushfire season, an expert from the University of New South Wales (UNSW) has outlined insurance loopholes and challenges to avoid.
Michael Sherris, insurance expert and professor from the School of Risk and Actuarial Studies at UNSW Business School, said fire insurance is usually included in home insurance. However, policyholders must know what they are covered for and if their policy is up to date and reflects the cost of a new rebuild.
“While most insurance companies should pay out, there are some issues and challenges that result in policyholders being underinsured or not insured at all,” Sherris said.
Insurers have been urging Australians to prepare for bushfires to reduce risk and safeguard their homes and properties.
Sherris warned that building codes, which have been revised following previous bushfires, can result in underinsurance.
“Building codes were revised after the black summer bushfire event and, depending on the risk level of the property, this impacts the cost of replacement,” he said.
Sherris further explained that building codes can change over time to incorporate new safety standards related to fire resistance, so when homes do not comply with new building codes, then insurance companies would most likely not cover the cost of rebuilding the policyholder's home to a standard that is compliant with the new building codes.
“If your home's cladding material, for instance, does not meet the building code requirements in your area, and in the unfortunate event of a bushfire causing damage to your home, necessitating a rebuild with cladding material compliant with the building code, you will incur higher costs. Your insurance company, in this situation, will typically not cover the higher cost,” he said. “It is the same if you renovate parts of your property to the new building codes. Your property is valued higher because it is more resilient to bushfires. Unless your insurance company is aware of this and reassesses your insurance premium based on your new building codes, you will be underinsured.”
