Under-insurance of homes a major issue
81 per cent of renters and homeowners are exposed to financial loss because their home and contents insurance does not cover them to resume the same standard of living in the event of a crisis.
Following a survey of 12 insurers, ASIC has called for further improvements to help consumers make good decisions about the amount for which they should insure their homes.
In response to ASIC's recommendations from October 2014, insurers have made a range of improvements. In particular, most insurers have implemented, or are implementing, the following changes:
Incorporating a sum insured calculator into point of sale processes, including through updated sales scripts, and providing better access to online calculators. This helps consumers select an appropriate sum insured amount during the quote and sales process, an important way to help reduce the risk of underinsurance.
Training staff so that information provided to consumers about the sum insured, and the maximum amount paid by the insurer, is clear and in plain English.
Providing information or assistance to consumers about the effect of changes to building codes which may increase the cost of rebuilding homes after a total loss.
ASIC released two reports in October 2014 exploring consumer experiences with the sale of home insurance.
In Report 415, ASIC reviewed the sales practices of 13 insurers who sell home insurance across Australia. The report found that for sum insured policies, it is important to help consumers to set an appropriate sum insured amount, so that they are adequately insured in the event of a total loss.
Most home insurance policies in Australia are 'sum insured' policies, where the insurer agrees to pay only up to an agreed amount (the sum insured), nominated by the consumer, to repair or rebuild a damaged or destroyed home.
ASIC encouraged insurers to inform consumers that the building sum insured amount should reflect the amount that it would cost to completely rebuild their home.
Similarly, the contents sum insured amount should reflect the amount it would cost to completely replace all contents with new items at today's prices.
The sum insured amount should also reflect the cost to rebuild the consumer's home to meet new building codes and standards, and any other supplementary costs.
For information on supplementary costs see MoneySmart's page on home insurance supplementary costs.
1 March 2016.