When property prices soften, many homeowners reach the same conclusion: if the house is worth less, surely it should cost less to insure. It's an understandable assumption. It's also increasingly the wrong one.
Across Australia, residential property values and residential construction costs are moving in very different directions. Home values have come under pressure in response to higher interest rates and affordability constraints. At the same time, the cost of rebuilding a home continues to rise, driven by labour shortages, material costs, supply chain constraints and a construction sector still grappling with capacity challenges.
A property's market value reflects what someone is willing to pay for it today. Its replacement value reflects what it would cost to rebuild it tomorrow. The two are linked in consumers' minds, but they operate on entirely different economic drivers.
Recent construction cost data continues to show building costs increasing faster than broader inflation in many parts of the country. In some regions, particularly in northern Australia and Queensland, those increases have been significantly more pronounced. Yet as property markets cool, many homeowners are reassessing their insurance arrangements and, in some cases, reducing sums insured to align with lower market valuations.
The result may be a heightened risk of underinsurance that often remains invisible until a major loss occurs.
Industry research suggests many Australians are uncertain about what a full rebuild would cost in today's market. In a world of rising premiums and persistent cost-of-living pressures, that knowledge gap creates fertile ground for short-term decisions that can have long-term consequences.
The challenge for brokers, then, is helping clients understand a distinction that becomes harder to explain every time property prices make headlines.
The underinsurance risk is being compounded by another issue: a growing disconnect between what consumers experience at renewal and what insurers believe they are communicating.
For many households, renewal season arrives with a familiar sense of frustration. Premiums increase while broader economic pressures continue to squeeze household budgets. Faced with limited information about why costs have risen, customers naturally look for ways to reduce expenditure.
Too often, the easiest lever appears to be reducing cover.
Investigations into renewal communications have raised questions about how effectively premium increases, risk drivers and insurance calculations are being explained to customers. While insurers face legitimate challenges ranging from natural catastrophe costs to reinsurance pricing and inflationary pressures, consumers rarely see that complexity reflected in language they can easily understand.
Trust is difficult to build and remarkably easy to lose. When customers do not understand why premiums are increasing, they often assume the increase cannot be justified. That perception does not reflect reality, but perception shapes consumer behaviour.
The industry's opportunity is not just to explain higher premiums, but to explain risk more effectively. Customers need clearer information about rebuild costs, practical mitigation measures and the consequences of reducing cover below replacement value. Better conversations today may prevent significant hardship tomorrow.
For insurers, brokers and claims professionals, rising rebuild costs and shrinking construction capacity are increasingly influencing how claims are managed and settled. Finding repairers can take longer. Builder insolvencies create uncertainty. Material costs can move significantly between assessment and completion.
It is hardly surprising, then, that claims handling has become a major feature of the final redraft of the General Insurance Code of Practice (GICOP), submitted to ASIC on 22 October 2026.
Much of the discussion around the redrafted GICOP has focused on consumer protections, contractual enforceability and governance. However, when builders are scarce, supply chains are stretched and repair costs remain volatile, claims become more complex to deliver. Delays that might once have been viewed as operational frustrations can quickly become customer trust issues.
That reality is reflected throughout the proposed GICOP changes.
The introduction of stronger requirements around cash settlements is perhaps the clearest example. Historically, a cash settlement offered policyholders flexibility and control. However, in a market characterised by labour shortages, builder insolvencies and rapidly changing construction costs, accepting a cash payment can also mean assuming risks that many consumers neither anticipate nor fully understand.
The submitted GICOP acknowledges this shift. Requirements for clearer explanations of settlement options, enhanced disclosure obligations, cooling-off rights and review mechanisms all point to a common principle: customers should understand the practical consequences of taking responsibility for their own rebuild. It also requires insurers to provide unredacted external expert reports automatically when a claim is declined or partially declined, while retaining a 60-business-day deadline for external technical reports.
A cash settlement may bring a claim file to a close. It does not always rebuild a home.
The 12-month claims decision provision tells a similar story. Home building, contents and motor claims that remain undecided after 12 months will be automatically accepted up to policy limits, subject to defined exceptions such as fraud or active court or AFCA proceedings. The provision recognises that prolonged delays, regardless of their cause, create uncertainty and hardship for customers. It also places a renewed spotlight not just on claims decisions themselves, but on the capability and resilience of the repair and supplier networks that support them.
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Perhaps most significantly, the Code reinforces the idea that insurers are accountable for the customer outcomes delivered by their repairers, builders and other representatives. It also requires insurers to monitor external experts' compliance with report quality, independence and technical standards, rather than monitoring only whether reports are delivered on time. In a construction environment under strain, that elevates supply-chain management to a core operational concern.
The GICOP rewrite recognises that trust is built or lost in moments of recovery, and recovery ultimately depends on the industry's ability to navigate the same construction pressures affecting every other participant in Australia's housing market.
So what should the industry focus on?
The first priority is ensuring rebuild valuations remain accurate and regularly reviewed. Property market movements should never be used as a proxy for replacement cost.
The second is improving the quality of customer conversations, both at renewal and throughout the claims journey. Transparency around premium drivers, rebuild costs, settlement options and emerging risks is no longer a customer service enhancement. It is fundamental to maintaining trust.
The third is recognising that insurance does not operate independently of the construction sector. Builder capacity, labour shortages, repair timelines and housing supply all have a direct bearing on underwriting, claims outcomes and customer experience.
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The proposed GICOP reforms reinforce the importance of those conversations. Whether the challenge is underinsurance, cash settlements or rebuilding delays, the common thread is helping customers make informed decisions. Because the real danger in today's housing market is not falling house prices. It is the false sense of security they can create.
And as rebuilding becomes more expensive and more complex, trust will increasingly depend on helping customers understand risk, not simply explaining premium increases.
Katrina Shanks is CEO of the Australian and New Zealand Institute of Insurance and Finance (ANZIIF)
