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Online calculators responsible for underinsurance: surveyor

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Popular online insurance calculators are causing people to underinsure their homes by hundreds of thousands of dollars, a surveyor claims.

Melbourne-based MCG Quantity Surveyors ran the numbers on the estimated rebuild cost of a home using both a calculator and a detailed professional cost estimation. It says the results show some homes are being underinsured by up to 66% when using the online tools.

The lowest-value calculator assessed the insurance value for a new house at $226,160, compared to a professional estimate done by the company which valued the house at $668,559. The highest online estimate underinsured the house by 20%.

MCG Director Marty Sadlier has used the results to question why insurers are increasingly recommending customers use the calculators, calling them “oversimplified tools”.

He says the calculators exclude fundamental components of insurance that could cause customers to lose thousands of dollars unnecessarily.

The house used in the comparison was not an isolated outcome and the results would be devastating if it was extrapolated across the population, he says.

The problem is “compounding after decades of being ignored”, Mr Sadlier said.

“Unfortunately, little has been done to take these calculators to task and, in fact, customers are being increasingly advised to use them by insurance companies and even government departments such as,” he said.

A Suncorp spokesman told its online calculator uses “extensive building industry data to estimate rebuilding costs, including demolition, professional fees, removal of debris and GST”.

It takes the specific information provided by the customer into account when determining building replacement costs at current prices and is updated quarterly using the online construction database Cordell, the spokesman said.

Last year the Insurance Council of Australia defended the use of online insurance calculators against attacks by consumer group Choice, saying they provide reliable guidance on the amount of insurance householders might choose.

Calculators are typically customised and the lower estimates may not include fees, costs and accommodation expenses.

The Suncorp spokesman says the calculators should be used as a guide by consumers while considering their individual circumstances.