Thousands of Australian homes could be underinsured by as much as 66% due to error-prone online valuation calculators, according to new research from MCG Quantity Surveyors.
The finding was based on a review of web-based calculators against a detailed professional cost estimation of a home in Sydney's southwest.
A professional valuation made on a property in Aird, which calculated the construction cost plus sums for demolition, removal of site debris, and consultant's fees, came up with $668,559. However, when data for the same property was plugged into five online home insurance calculators, a vast array of sums turned up.
“The lowest value calculator assessed the insurance value at $226,160 – or 66% below the needed amount – while the highest web-based estimate was $535,000, which is still 20% underinsured,” Marty Sadlier, director of MCG Quantity Surveyors, told 9News. “Not only do these calculators tend to underestimate construction costs overall, most don't include amounts for demolition, debris removal, cost escalations, and consultant's fees.”
Sadlier said homeowners could be put at risk of financial losses by insurance companies’ reliance on web-based calculators.
“This epidemic of underinsurance could prove totally shattering and is due almost entirely to the ongoing use of web-based insurance calculators,” Sadlier told 9News. “Worst of all, these erroneous calculators continue to be recommended by insurance companies and even government departments, despite long-term evidence of their failings.”
Estimating how much home insurance a property requires can become a complex process, highlighting the need for insurance brokers.
“When estimating how much home building insurance you need, it's important not only to consider the cost to rebuild your home, but also factor in other costs you may not have thought about, such as accommodation while you rebuild,” Australian Securities and Investments Commission (ASIC) explained on its money smart website. “Underinsurance is when you don't have enough insurance to cover all the costs of rebuilding your home. You are considered to be underinsured if your insurance covers less than 90% of the rebuilding costs.”