A new study by the MCG Quantity Surveyors found that thousands of Australian homes could be uninsured by as much as 66% due to web-based valuation calculators.
According to the study, many online valuation calculators are not accurate. To prove this, MCG Quantity Surveyors conducted a professional valuation on a property in Aird, calculating the construction cost, sums for demolition, removal of site debris, and consultant's fees. The professional valuation arrived at $668,559.
However, when the same set of data for the property was used in five different home insurance calculators online, the results were different — the lowest value taken from the web-based tools was $226,160, which was 66% below the needed amount. On the other hand, the highest web-based estimate was $535,000, which was still 20% underinsured.
According to the Australian Securities and Investments Commission, a home is underinsured when the insurance covers less than 90% of the rebuilding costs.
"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 said.
MCG Quantity Surveyors director Marty Sadlier said homeowners could be at risk of financial losses due to the reliance on these online platforms. He said these "erroneous" calculators continue to be recommended insurance companies and even government departments despite long-term evidence of their failings.
"Not only do these calculators tend to underestimate construction costs overall, most don't include amounts for demolition, debris removal, cost escalations, and consultant's fees," he told 9News. "This epidemic of underinsurance could prove totally shattering and is due almost entirely to the ongoing use of web-based insurance calculators."