|
Has home insurance improved?
What insurers are doing
Since we released our 2005 report, insurance companies have taken steps to
reduce the problem of underinsurance by:
- introducing alternative types of policies such as total replacement and
extended replacement policies,
- making the indexation of the sum insured at renewal more realistic by
using costs indexes such as CHIP and or other sources rather than
relying on CPI alone,
- educating consumers to re-evaluate their sum insured each time they
renew their policy in light of increased costs and/or any renovations,
- making greater use of sophisticated web-based calculators that give
more accurate estimates of rebuilding costs,
- educating consumers about underinsurance on websites and in
renewal mail outs,
- undertaking research in disaster prone areas,
- undertaking research into consumer attitudes to insurance and risk.
Most insurers surveyed in 2006 plan further educational initiatives in
renewal mail outs and on websites within the next 12 months.
We commend these measures. We encourage insurance companies to
continue to make improvements in all of the areas discussed in this report
and particularly to investigate the viability of the more widespread
introduction of total replacement policies. This step alone ensures that
consumers are adequately insured-if their home is accidentally destroyed,
they can afford to rebuild it.
Consumer responsibilities
Consumers also have a responsibility in reducing the risk of underinsurance.
They should:
- consider the relative merits of alternative policies, including total
replacement and extended cover policies,
- make use of the tools and aids that have been developed by insurers
to determine appropriate levels of insurance to cover property and
other assets,
- assess the sum insured over time and not just when they take out their
insurance policy. Greater access to sophisticated online calculators
means consumers can now do this more readily and conveniently,
- ensure that their home is well maintained, reducing the risk of a total
loss.
At greatest risk of becoming underinsured over time are:
- consumers who have been insured for ten or more years and who
have not recently reviewed building costs,
- consumers who have renovated their home and not increased the sum
insured to cover any improvements, and
- consumers who live in areas where there have been significant
changes to building code requirements, which mean that any
replacement home will have to be built to a higher and more
expensive standard (increasing rebuilding costs). This was the case
with homeowners affected by Cyclone Larry.
Further work by ASIC
We will continue to actively monitor developments in the marketplace by:
- monitoring advertising and complaints,
- furthering consumer education,
- creating consumer tools,
- examining insurance products,
- monitoring web-based calculators, and
- undertaking further research into the industry, including targeted
reviews of practices where particular problems are identified.
35 Tropical Cyclone Larry CTS technical report TR51, September 2006,
recommendations made in the report, p. 76.
36 Information provided by the Cyclone Larry Taskforce, 26 October 2006.
|
