Insurance Business has been canvassing industry views on online building insurance cost calculators. Marty Sadlier (pictured above), director of MCG Quantity Surveyors, argues that these calculators are inaccurate and one major reason why more than 80% of Australians are underinsured on their properties. Sadlier wants commercial and residential property insurance calculated from mandatory quantity surveyor reports on construction costs.
In response, the Insurance Council of Australia (ICA) said building insurance cost calculators play “an essential role” providing consumers with the tools to ensure their insurance coverage is appropriate. The ICA also said these calculators can reduce the risk of “both underinsuring or over-insuring home and contents.”
As part of the ICA’s response, CoreLogic, the technology firm behind the Cordell Sum Sure calculator said its “a real-time, ‘live’ rebuild calculator which maintains a regularly updated view of construction input prices, building code requirements, building methods, transport, storage and local wage costs.”
Insurance Business continues to seek out industry input.
Sadlier said that, even during the last six months, the views held by parts of the insurance industry towards using a quantity surveyor as the primary source of calculating property construction costs had changed significantly.
“Last year, if I went to an underwriter and said, ‘You should be using a quantity surveyor because you’re taking risks out on property that could be underinsured and you’re exposed,’ they would hang up the phone or walk away at an expo,” he said.
Sadlier said these underwriters viewed calculating this cost as the responsibility of the broker and their client.
Read next: Industry invited to tackle underinsurance
“This year, going to expos and talking to people, we now have underwriters referring to us direct,” he said. “We’ve got underwriters now that are saying that, to take a risk on, they want an independent report [by a quantity surveyor] on what that [property] value is.”
He said if they don’t receive that report within a year, those underwriters are refusing to renew the property coverage.
Sadlier described himself as a passionate advocate for mandatory quantity surveys but said his efforts have little to with this changing attitude. “I put it down to really one thing and that’s the market because construction costs have soared,” he said.
Sadlier said the east coast flooding has had a big impact on supply chains and the availability of construction materials. He gave an example of a commercial property insured to cover rebuilding costs of two million dollars for the last eight years. The owner is now facing rebuilding costs of about eight million dollars.
He said that, historically, brokers and insurers weren’t held accountable for major cases of underinsurance like this. However, he suggested that could be changing.
“About two months ago, AFCA (Australian Financial Complaints Authority) did rule that an insurance broker and an underwriter were complicit in an underinsurance claim on a motor vehicle,” said Sadlier. “So I think you’re starting to see that lens change.”
He said underinsured rural pubs could be where brokers first start to run into their clients’ underinsurance issues. “You see it a lot with rural pubs where they’re insured for $800,000, but it should have been two and a half million dollars,” said Sadlier.
He said if a broker takes a fee and a rural pub client ends up severely underinsured that could become “a telling point.”
A major part of the underinsurance issue is education, said Sadlier, particularly in the residential market.
“I think the vast majority of people assume that they’ve got the right level of cover,” said Sadlier. “They look at it and go, ‘I can build a new Metricon home for S400,000.’ But that’s not what your place will cost to rebuild.”
Sadlier said these homeowners probably haven’t taken into account costs like demolition, clean-up, architects’ and council fees, site works and fencing. That’s not to mention timeframes.
“You’re not rebuilding it today, you’re going to be rebuilding it in 18 months’ time because it’s going to take a year to get through council,” he said.
Sadlier said many of the online cost calculators are limited, especially when the property is not a cookie cutter home.
“The problem with the calculators is that they’re trying to, in their best way, put a square peg in a round hole,” he said. “There are only certain things that you can do selecting from a drop down [menu].”
For example, he said, if you spent one million dollars on an expensive volcanic rock floor.
“It’s just not going to be in there for you to do,” he said. “[Also] you might have a heavily tree lined street where you’re just not going to be able to get big trucks in or cranes in to be able to build your house now.”
The CoreLogic background information said its online calculator “produces an estimate of what it will cost to rebuild your house at your location at today’s prices – and includes the ancillary costs, fees and incidentals (demolition and waste removal).”
It went on to say that the firm maintains thousands of virtual house models to assess the requirements and resulting cost of rebuild for “any property in Australia.”
An update to the calculator is expected in early 2023, including a forward-looking calculation of costs and labour rates.
