Regardless of how it can be achieved, an adequate level of home and contents risk cover at affordable prices is a must-have for Australians.

The underinsurance problem highlighted by last February’s Black Saturday bushfires in Victoria – and raised again on the first anniversary yesterday – is by no means particular to that event, and with climate change expected to drive a greater frequency and intensity of natural catastrophes, non-insurance levels of 30% are cause for genuine concern.

But consumer groups like to point out that 70% of people were properly insured, and say the real problem to emerge is the need for insurers to help their customers fully cover their risks.

They say the industry is hiding behind its long-running campaign against taxes on insurance, including Victoria’s controversial fire services levy (FSL).

Lawyer Denis Nelthorpe, a consumer advocate with extensive insurance dispute resolution experience, said last week the best way for insurers to protect people would be to phase out sum-insured policies altogether and offer only replacement-value policies that more fully cover homeowners.

“There is no significant price difference between the policy types and the sum insured policies serve no real purpose except to save insurers money if homeowners make a claim.”

Mr Nelthorpe says a number of insurers offer sum-insured policies only because they don’t want to put money into computer software that properly assesses the replacement value.

“My feeling is that some insurers are not confident they can properly calculate the cost of a replacement policy,” he told insuranceNEWS.com.au.

“Of course, the great irony is that if that’s true, how on earth can you suggest that it should be a consumer’s responsibility to nominate the sum when an insurer reckons with all its resources it can’t do it?”

Pricing a risk for the full replacement value of a dwelling has some inherent commercial challenges. For example, rebuilding efforts following a natural disaster on a community or regional scale always see the cost of building materials and labour jacked up. An under-valuation on a grand scale could prove expensive.

InsuranceNEWS.com.au understands some insurers are proving better than others at making replacement-value policies work commercially. Rocket science it may well be.

Regardless of that, the insurers will continue to concentrate on getting the burden of unfair insurance taxes – like the FSL and stamp duty – transferred to the community. The levies in Victoria, NSW and Tasmania are now seen more clearly as a major disincentive for people to take up any type of householders cover.

Just last month, the Australian Financial Centre Forum reported to Federal Treasury that the taxes contribute to underinsurance and the associated drain on government funds, plus make the nation less attractive to new corporate entrants to the insurance sector.

Australia’s Future Tax System review chairman Ken Henry called insurance taxes “highly inefficient” in an October address to the Committee for Economic Development of Australia.

But Mr Nelthorpe points to industry research showing a minimal 1% rise in insurance uptake when WA removed its FSL. However, it’s also a fact that the actual cost of that insurance fell markedly.

The Victorian bushfires, with their shocking death toll of 173 and areas of complete devastation, not surprisingly became a fixture on the national agenda. Apart from the funds raised for victims through public appeals, government assistance including Federal disaster recovery relief payments were readily forthcoming.

But two months later when torrents of storm water swept through the Coffs Harbour region of New South Wales, affected residents were declined such relief.

A study by the Coffs Coast Recovery Committee released in November revealed gaps in the insurance and relief system. While most people were insured and had their claims accepted, underinsurance was a common problem.

The survey showed 25% of people were still living away from their homes, while 10% would never be able to return.

And in contrast to the largesse displayed following the more dramatic Victorian bushfires, only 10% of the respondents who applied for government assistance following the Coffs Harbour event received it.

The only thing you really can rely on in such circumstances is a solid insurance policy and confidence in the insurer paying the claim. Government handouts following a smaller, more common civil disaster are far less reliable as a source of rebuilding capital.

No one ever said the struggle to overturn insurance taxes was going to be easy, or that it would be the final step in providing the community with complete security. There are other problems that will also have to be dealt with before the ideal of efficient and affordable cover can be achieved.

Ensuring every policy provides the best possible cover for the risk has to be addressed – not as a social service but because it’s commercially attractive to do so. Under that impetus, it will be dealt with at a much faster rate than the need to transfer the tax burden away from insurers has been addressed by state governments.