Australian homeowners could be facing the risk of underinsurance as construction and labour costs consistently increase amid the COVID-19 pandemic, according to a study by MCG Quantity Surveyors.
The study estimates overall costs of construction and labour have risen by $48,500 in Sydney, Melbourne, and Brisbane over the past six months, roughly equivalent to a 10% increase.
MCG director Marty Sadlier said the surge in construction costs and labour heightens the likelihood of "financial ruin" for many homeowners who are unaware of the impacts of construction costs on insurance.
"Property owners could be left hundreds of thousands out of pocket should an unfortunate event have them calling their insurance provider,” Mr Sadlier said.
“Most will only discover they are woefully underinsured when it’s too late.”
Mr Sadlier said there are three things property owners can do to prevent being underinsured:
- Update insurance value regularly, at least once a year.
- Consult with professionals to assess your property's replacement costs. Refrain from using online insurance calculators — use these only as guides.
- Shop around for insurance options. An increase in value can mean a hike in premiums.
"Make sure you use a reputable insurance broker to confirm you’re paying the right price for your insurance," Mr Sadlier said.
Prior to the pandemic, the Insurance Council of Australia estimated around 83% of property investors are already uninsured.
"Given the recent hikes in materials and labour costs, I’d be surprised if we weren’t closer to 100% of owners at risk," Mr Sadlier said.
Some inner-city suburbs have more challenging conditions, as construction costs could go over $1m.
"The average construction program on these sites have increased by as much as an additional 16 weeks due to material and trade shortages,” he said.
“As such, there are plenty of cities and towns where real costs have gone up by 15% or more for the end user once these delay costs are accounted for.
“This only allows for construction costs. Insurance is also supposed to cover additional outlays such as professional fees, council charges levees and even emergency accommodation – all of which add to the end amount.”