A policyholder whose home was destroyed by bushfire has failed to hold her insurer responsible for "significant underinsurance".

The woman told the Australian Financial Complaints Authority (AFCA) that Insurance Manufacturers of Australia helped select an appropriate level of cover at the policy's inception.

She argued the insurer’s advice had left her badly underinsured and that it should fund the full replacement of her building and contents.

She said the policy was purchased by her late mother and the insurer asked a series of questions about construction, layout and materials and “advised of the cost to rebuild the property”.

The complainant says that her mother, and subsequently herself, assumed the insurer requested the information to calculate the cost of replacement.

She says no warnings about underinsurance were given and the insurer should have known that the cost of rebuilding would have greatly increased following the introduction of Bushfire Attack Level standards after the Black Saturday fires of 2009.

She told AFCA the insurer’s conduct was not only misleading but also a breach of requirements to act in utmost good faith.

But AFCA disagreed, saying insurers do not usually provide personal advice to consumers.

“An insurer does not usually offer a recommendation or opinion about the insurance cover based on the person’s individual circumstances. There is no evidence that the insurer gave personal advice in this case.”

It accepts the insurer asked a number of questions at inception but says “the insurer needed to ask those questions to understand the risk it was insuring”.

No call recording is available to prove what was discussed at policy inception, but AFCA says even if the insurer did advise on rebuild costs at that time, the onus was on the complainant to ensure the amount remained adequate at renewal.

AFCA notes that the Certificate of Insurance requests that the insured checks the sums insured to make sure they cover the replacement value of home and contents.

AFCA did order the insurer to pay the complainant $500 compensation for non-financial loss, and issue a written apology, after it continued to send correspondence to her after she provided authority for someone else to act on her behalf.

The complainant says the insurer showed “total disregard for her wellbeing and caused additional stress and trauma” by continuing to correspond directly with her.

Click here for the ruling.