In December, Insurance Business published an interview with Marty Sadlier, director of Sydney-based MCG Quantity Surveyors. Sadlier strongly argued that online building insurance cost calculators are inaccurate and a big part of Australia’s underinsurance problem. Figures show that more than 80% of Australians are underinsured on their properties. He said this problem could be solved if quantity surveys are a mandatory part of purchasing domestic and commercial property insurance.
In the interests of balance, IB has reached out to different industry stakeholders for their views on online building insurance calculators, including the Insurance Council of Australia (ICA), Allianz and several brokers in recent articles.
“I would argue if the purpose of introducing this [quantity survey] report is to make the sum insured more accurate, then you could only then reference that argument if you’re getting another one done every year,” said Angelo Azar (pictured above). “It then leads to a question of ‘who’s funding that?’ These reports will cost about $500 or $600, they’re not cheap.”
Azar is COO of Honey Insurance, a relative newcomer to the industry that launched in June 2021. The insurer’s website says it can deliver a home insurance quote in three minutes and Azar said it uses the Cordell Sum Sure calculator to help do that. He said this calculator is the industry standard and the figure it comes up with is an important guide for a customer.
“We also reference other third party data sources that accompany that so it’s not just the sum insured calculator from Cordell that’s being referenced, you can have satellite imagery, you can have historical claims costs – there are a number of them,” said Azar, whose previous executive experience includes roles at Hollard Insurance and Commonwealth Bank. Honey describes him as knowledgeable on “all things insurance” and “passionate” about issues like underinsurance.
“The biggest challenge in insurance today for consumers is affordability, it’s not underinsurance,” he said. “I feel like this cost [of a quantity survey] only makes the problem worse, it doesn’t address it.”
Azar said a mandatory quantity survey would do a lot more than just blow out his firm’s three minute insurance quote pledge to customers.
“I think there’s a point then to raise the issue of underinsurance but I [also] think there’s a practicality element to this,” he said. “How many customers will actually see this as a value add versus the insurer trying to pop up the premium for a problem that they may never encounter?”
Azar said for houses worth many millions of dollars, the premiums could absorb the cost, but not the home of the average Australian.
“The counter argument could be the insurance providers should absorb that but I think once you start to work through the P&L of an insurance provider, the costs have to flow somewhere,” he said. “What does that mean? Does that mean the deterioration of services? So I don’t think it’s a practical answer.”
Azar said the practical answers to underinsurance include: insurance product design, regulations, and customer education.
Honey said it aims to be fair in pricing. The firm’s home insurance is more expensive than some other offerings but part of its value proposition and point of difference, it says, comes from including safety nets. One major safety net is its commitment to pay 30% on top of the sum insured for a mixture of debris removal and house redesign.
Despite the speed of its quote delivery, Honey says the customer is warned several times during this process about the serious consequences of taking out insufficient home insurance.
“The reason why we’ve designed the product that way is we know that regardless of the tools, regardless of the third party sources, customers may unwillingly choose an amount that is too low, so we warn customers at least three times in the journey with us if they try to select the sum insured, that’s too low, that there is a risk of under insurance here,” he said.
Azar said there’s a responsibility for insurers to actually design their insurance journeys to take this into account, messaging isn’t enough.
“For those products that don’t factor in any type of safety net, I think they should be reviewed as to whether they are consumer friendly,” he said. “More often than not, they’re leaning towards the cheapest product in the market but does that mean they are just compounding the issue because, as a consumer who is very cost conscious, I may select what appears to be the cheapest product in the market, only to find that that doesn’t meet my needs?”
He said these cheaper home insurance offerings are compounding the growing underinsurance issue.
“I do feel it’s a problem that needs to be addressed but I don’t think the surveyor report addresses it,” said Azar. “I think the surveyor report may look like an attractive way of addressing it but it opens up a whole range of other issues, affordability being the main one that comes to my mind.”
The Honey COO suggested that regulations around product design and the purchase process should ensure there are customer warnings about underinsurance and more clarity around what the customer is buying.
“I would say that a lot of customers might buy an insurance product that has no safety net at all and do not know that’s the case,” said Azar. “There is an anecdotal assumption, I can say from my point of view, when I speak with people, that the insurance provider will just help me out if it’s [the rebuild cost of, for example] $50,000 or more.”
Rather than quantity surveys, the workable solution to the underinsurance issue, he said, is for insurers to take more responsibility.
“At the point at which the customer is getting a price from you, you should say, ‘Here are some of the impacts of underinsurance and here are a couple of things you can look at if you’d like to look to get a better idea of how this might impact you,’” he said. “Maybe that’s where the option of a quantity surveyor could be mentioned and whether the customer would like to take that up, but insurers should at least share the impacts of underinsurance and the facts around it.”
Honey Insurance is one of the top 10 insurtech companies in Australia.
