A considerable number of property owners are under-insured according to a recent study conducted by the Insurance Council of Australia. This is a serious problem and many owners would be faced with substantial financial loss in the event of a total loss.
The Strata Schemes Management Act 1996 requires that Insurance Replacement Valuations be prepared every five years.
In the current environment with fluctuations in insurance premiums and rising construction costs, gambling with your cover by insuring for less than your asset's replacement value is not worth the risk.
If a total loss occurs and you are under insured, the insurance company will consider that you are carrying part of the insurance risk and pay for a portion of the replacement cost.
If a building was to be destroyed today, there will be many significant costs incurred over and above the replacement of the building itself. These include:
- Demolition and debris removal
- Specialist Consultants costs
- Builder's preliminaries and profit
- Escalation in costs between the time of an "event" and calling for tenders.
Building owners should also be aware of over-insuring. This occurs when insurance is paid for a greater amount than the insurable interest would justify. This can easily occur if you are increasing your cover each year by a nominal percentage without reference to the specific asset and market conditions. Unnecessarily high premiums can be avoided with an accurate Insurance Valuation so you are not paying anymore than you have to.