The replacement cost for the contents of an average Australian home has increased 2.7% in the past year, slowing from a 5.4% gain the previous year, specialist firm Sum Insured says.

Key factors behind this year’s growth include increases in the cost of furniture, major appliances and computer and communications equipment.

Sum Insured’s residential contents index (RCI) is used by insurers and brokers to recommend coverage increases for policyholders, and differs from the consumer price index as it only measures items covered by home contents policies.

“Items such as transport, education, housing and even insurance drive the CPI but are not included in the Sum Insured RCI,” CEO Mike Bartlett said.

The RCI has been published annually since 2007. Increases in recent years have accelerated from 1.2% in 2020.

Mr Bartlett says it is a useful tool for understanding changes in replacement costs.

“For instance, if a policyholder set their sum insured in 2020, it should have increased by about 15% to remain adequate at today’s prices,” he said.

The index reflects both an “average” standard of home contents, including no-name brands and self-assembled furniture, and a “quality” standard.

Mr Bartlett says underinsurance can stem from factors including initially setting the sum insured incorrectly, accumulation of possessions and inflation.

“All these factors need to be addressed to reduce policyholder risk,” he said.