Industry consultant John Trowbridge says home insurers should move towards offering total replacement policies to tackle “systemic” underinsurance.

Mr Trowbridge gave evidence today to the Federal Government’s inquiry into insurers’ responses to the record-breaking floods of 2022. 

He says the vast majority of insurers currently require their customers to nominate a sum insured for their property, which can be difficult for them to get right and can result in significant underinsurance.

“Insurers don’t take any responsibility for the accuracy of the sum insured relative to the replacement value,” Mr Trowbridge said.

“We have got chronic underinsurance. Every time there is a disaster we see it in the statistics after the event and there are all sorts of really terrible outcomes for people who are underinsured.” 

Mr Trowbridge’s submission to the inquiry says he holds the view “that insurers should be offering full replacement cover more widely”. 

He told the committee today that such a move would not increase premiums significantly because total losses are relatively rare.

“It should make a minor difference [to premiums],” he said.

When asked if insurers should be forced to move to full replacement policies, Mr Trowbridge said that should be part of any future discussion.

“I don’t know what’s the best way of getting there. What I do know is that underinsurance is rife, it is systemic, and it is not sensible.”

As insuranceNEWS.com.au has reported, New Zealand moved away from full replacement policies following the Canterbury earthquakes, as reinsurers sought greater certainty. 

But Mr Trowbridge says insurers and reinsurers could find a way to reintroduce total replacement policies in Australia. A small number of insurers, including AAMI, do still offer such policies.  

“It’s an issue that insurers would prefer not to have to think about. Reinsurers would have to adapt to it.  

“But to me it’s no different really in principle from them all agreeing back in 2011 or 2012 to offer flood cover when they said they couldn’t.” 

The House of Representatives Standing Committee on Economics has already heard from consumer groups, regulators, insurers and reinsurers.

Next month and in May, the committee will visit regions worst affected by the floods, including Brisbane, Lismore, Sydney, the Hawkesbury, Eugowra, Molong, Melbourne, Rochester and Heathcote. Dates of each visit have yet to be confirmed.

The committee is required to report by September 30.