The gap between what Australian homeowners believe they are insured for and what it would actually cost to rebuild their homes has become a professional risk issue for insurance brokers – and the evidence base behind it is now coming from regulators, not just comparison websites.
New research from Compare the Market found that just 11.5% of Australian homeowners feel confident they know what it would cost to rebuild their home at current construction prices. A further 34.7% said they did not feel confident setting a rebuild value at all, and 53.6% said they had a rough idea but were not completely sure. Of those surveyed, 15.4% worried they could be underinsured, 14.8% were unsure whether they had the right amount of cover, and 24.6% felt they could be overinsured. Only 45% believed they had the right level of cover.
Those consumer figures arrive in the same period as a significant regulatory intervention. In March 2026, the Australian Prudential Regulation Authority (APRA) released its Insurance Climate Vulnerability Assessment (Insurance CVA) – a prudential stress test exploring how a changing climate could affect home insurance affordability and the protection gap over coming decades. The assessment found the home insurance protection gap for households in freestanding properties widens under both modelled scenarios, from an estimated one in seven households uninsured today to one in four by 2050.
National Insurance Brokers Association (NIBA) CEO Richard Klipin said the APRA findings reflected conditions brokers were already seeing. “APRA’s report underscores what brokers have been experiencing on the ground. Climate risk is already putting pressure on affordability, increasing underinsurance, and threatening the ability of too many Australians to protect their home,” Klipin said.
APRA’s assessment also noted that between 2010 and 2025, Australian home insurance premiums rose by an annual average rate of 7.2%, while wages grew at an annual average rate of 3.1% – a differential that erodes affordability and may push some policyholders toward reducing their sum insured to manage premium costs.
For brokers managing renewal books, the mechanism driving the sum insured gap is well-documented. According to the Australian Bureau of Statistics (ABS), house construction output prices rose 40.8% from the September quarter 2020 to the June quarter 2024. Master Builders Australia (MBA) reported in January 2026 that the cost of a newly built home was 2.3% higher year-on-year, with building materials rising 1.8% over the same period. Annual building construction output price growth stood at 4.2% as at the first quarter of 2026, above the trimmed mean, indicating construction is still inflating faster than the broader economy.
A sum insured set at policy inception several years ago, and never subsequently reviewed, may now sit well below current rebuild cost – before demolition, debris removal, professional fees, and building code compliance costs are added. Compare the Market Economic director David Koch said the miscalculation runs in both directions. “Some people are paying hundreds – sometimes thousands – of dollars more than they need to, because they are factoring in their land value on top of reconstruction costs. The rebuild cost of a home can differ significantly from its market value, because it is based on the cost of materials, labour, professional fees, and demolition or debris removal – not the value of the land it sits on,” Koch said. He also flagged the risk at the other end of the spectrum. “That means some people may be cutting back on cover just to cope. That is a really scary situation, because it could leave them out of pocket if they ever need to claim. The worst time to find out you’re underinsured is after a fire, flood, or major storm,” he said.
For brokers providing personal advice to retail clients, sum insured adequacy is not a discretionary service – it is an embedded obligation. The Australian Securities and Investments Commission’s (ASIC) Regulatory Guide 175 sets out how conduct and disclosure obligations under Part 7.7 of the Corporations Act 2001 apply to the provision of financial product advice to retail clients, including the duty to act in the client’s best interests and to provide appropriate advice. A client whose sum insured has not been reviewed against current rebuild costs, and who suffers a total loss, may find their policy falls materially short – and a broker who arranged or renewed that policy without addressing adequacy faces corresponding exposure.
The Insurance Council of Australia (ICA) has described the protection gap as a growing concern, noting that underinsurance or non-insurance has the potential to leave many Australians unprotected when disaster strikes, and that the gap threatens not only individual financial security but also the broader economy.
The scale of consumer uncertainty the Compare the Market survey documents also frames an opportunity. NIBA told federal lawmakers in May 2026 that when small businesses and not-for-profits have access to brokers, they receive better advice, more appropriate insurance coverage, superior claims outcomes, and greater confidence in the protection of their assets and livelihoods. NIBA’s February 2026 report, Complexity to Clarity: The Broker Advantage, drew on CoreData research covering Australian businesses currently using a broker, finding that 84% of clients trust brokers to act in their best interests and 91% said brokers helped them achieve better business outcomes.
Klipin, responding to the APRA findings, framed the consequences of inaction in systemic terms. “If we do not invest now in resilience, mitigation, and smarter long-term planning, we risk sleepwalking into a future where more households are left exposed and more communities become harder to insure. That is bad for consumers, bad for recovery, and bad for Australia’s economic resilience,” he said.
For brokers working through current renewal cycles, the Compare the Market data – read alongside the APRA stress test and sustained construction cost inflation – points to a straightforward operational question: when a home insurance policy was last placed or renewed, was the sum insured tested against what a rebuild would cost today?
