Nearly one in 10 Australian small and medium-sized enterprises report that their insurance coverage is inadequate – a structural gap that two consecutive years of national survey data, government price indexes, and rising intermediated premium volumes now illuminate from multiple angles.
The 2025 Vero SME Insurance Index, which surveyed 1,750 Australian businesses, found that only 42% of businesses review their sum insured annually, and that underinsurance remains a persistent issue. Almost 10% of businesses said they are currently underinsured, a figure Vero’s head of distribution Anthony Pagano attributed to “a lack of understanding coupled with cost-of-living pressures.” Two-thirds of SMEs do not consider underinsurance a major concern, even though over one-third have faced negative claim outcomes due to inadequate coverage. Additionally, 90% of businesses do not have a formal risk management plan, and 81% rarely or never conduct structured risk assessments.
The more recent 2026 edition of the same survey, which polled 1,500 businesses, indicates the underlying conditions have not improved. The 2026 Vero SME Insurance Index found that 75% of small businesses take only an ‘ad hoc’ approach to risk management, while 47% reported a revenue downturn in the past 12 months – pressure most acute among micro businesses, with 61% reporting lower revenue.
The underinsurance problem is compounded by sustained rises in the cost of what businesses are trying to insure. Input prices to house construction rose 2.5% over the 12 months to March 2026, driven by increases in raw materials costs including copper, aluminium, concrete, and cement, according to the Australian Bureau of Statistics Producer Price Index. Building construction output prices rose 2.2% over the year to June 2025, driven by increased labour costs.
Those figures reflect a structural baseline. Forward-looking forecasts indicate further pressure, particularly in markets where defence and infrastructure demand is adding to trade constraints. Quantity surveyor firm RLB forecasts construction cost growth of 5.1% in Adelaide for 2026, and 4% in both Sydney and Melbourne, with costs across all major Australian cities remaining well above pre-pandemic norms. RLB notes that Adelaide continues to experience elevated baseline pricing due to defence and infrastructure demand. For insurance purposes, the compounding effect of annual cost increases on a static sum insured is the mechanism through which underinsurance is created – not as a deliberate decision by the policyholder, but as a consequence of inaction across successive renewal cycles.
Total intermediated premium invoiced for the six months to December 2025 reached $22.97 billion, up from $21.59 billion in the June 2025 half and $22.28 billion in the same period a year earlier, according to the Australian Prudential Regulation Authority (APRA). Of that figure, $18.87 billion was placed with APRA-authorised general insurers, up from $17.66 billion in June 2025.
That premium growth has not, however, been matched by improved coverage adequacy across the SME market. The channel through which businesses buy insurance is shifting in ways that may be a contributing factor. In 2018, over a quarter of SMEs used brokers for most of their insurance needs, but by 2025 that figure had dropped to 10%, with 74% of businesses now using a mix of direct purchases and broker services. Pagano described this as businesses showing “an increased desire to work with brokers on a tailored basis, with 44% now opting to purchase portions of their insurance themselves.”
Businesses that split placements across direct and intermediated channels may have no single adviser reviewing the adequacy of their total coverage position at renewal – a structural condition that is particularly consequential when replacement costs are rising faster than most policyholders are tracking.
Adelaide-based Westphalian Insurance Brokers, which arranges commercial, farm, and personal cover across South Australia, said the pattern it observes locally is consistent with the national data. An unnamed spokesperson for the firm said the predominant cause of underinsurance in its client base is not deliberate risk-taking but policy inertia. “Most of the underinsurance we see is not a deliberate gamble. It is a policy that was right three years ago and has never been looked at since. A renewal notice is not a review. Sitting down once a year and checking what the business actually owns is the cheapest risk management most owners will ever do,” the spokesperson said.
Client satisfaction with brokers fell from 87% to 69% in the 2025 Vero survey, with 32% of businesses reporting dissatisfaction after the initial 12 months of a broker relationship. The 2026 Index found satisfaction has since stabilised at 69%, against a backdrop of ongoing broker consolidation and competitive market pressures. Key reasons SMEs choose to work with brokers include access to expert knowledge, cited by 88% of respondents, and service quality, cited by 82%. Both of those rationales are directly served by proactive sum-insured reviews – which, given the ABS and RLB cost data, now have a quantified foundation that brokers can bring to client conversations. The opportunity is to turn a renewal cycle into an advisory touchpoint, before a claim makes the case instead.
