Thousands of Australian property owners could have their homes dramatically underinsured thanks to error-prone online valuation calculators.
New research by MCG Quantity Surveyors claims that some owners could be under-insured by up to 66 percent, heightening the risk of financial losses as Australia lurches into bushfire and flood season.
The find comes after MCG conducted a review of web-based calculators against a detailed professional cost estimation of a home in Sydney’s south-west.
A professional valuation was made on a property in Airds, which calculated the construction cost plus sums for demolition, removal of site debris and consultant’s fees to be $668,559.
Information for the same property was then plugged into five online home insurance calculators which produced a vast array of sums.
Marty Sadlier, director of MCG Quantity Surveyors, said the difference between the professional estimation and the web-based calculator was hundreds of thousands of dollars.
“The lowest value calculator assessed the insurance value at $226,160 – or 66 percent below the needed amount, while the highest web-based estimate was $535,000 which is still 20 percent underinsured,” Mr Sadlier said.
“Not only do these calculators tend to under estimate construction costs overall, most don’t include amounts for demolition, debris removal, cost escalations and consultant’s fees.”
Mr Sadlier said the reliance on web-based calculators by insurance companies could see vulnerable home owners at risk.
“This epidemic of underinsurance could prove totally shattering, and is due almost entirely to the ongoing use of web-based insurance calculators,” Mr Sadlier said.
“Worst of all, these erroneous calculators continue to be recommended by insurance companies and even government departments, despite long-term evidence of their failings.”
According to the Australian Securities and Investments Commission (ASIC), estimating how much to ensure your home by can become a complex process.
“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,” ASIC recommends 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 percent of the rebuilding costs.”