Following the release of the Australian Securities and Investments Commission's report on underinsurance last week, the National Insurance Brokers Association (NIBA) has urged brokers to read the report and identify if any of their practices regarding advice on the appropriateness of cover need to be reviewed.

The report identifies a number of causes for high levels of underinsurance, which largely relate to the lack of consumer access to reliable tools for estimating rebuilding costs.

But NIBA CEO Noel Pettersen says among the causes identified, the report looks at the obligations of brokers as they relate to underinsurance.

The report says brokers are “under a common law duty to arrange a satisfactory level of cover. Where the consumer engages a broker to arrange cover for them, responsibility for assessing the appropriate sum insured may pass to the broker.

“Brokers are more likely to have an expert knowledge of the industry and the tools available to estimate rebuilding costs.”

Mr Pettersen says the report’s compilers admit it has not reviewed how brokers can assess building costs or whether consumers who use brokers are more likely to be adequately insured.

“The crucial issue for insurance brokers is to clearly agree with their clients what services they are going to provide them,” he said.

A NIBA report to members says brokers are not usually required to make sure that a client is adequately insured. “The insurance broker would, however, have to make the limit of their services clear to the insured to avoid arguments that their service was broader than that agreed.”