Home insurers should be required to give consumers key information about rebuild costs so they can make informed choices on coverage, Legal Aid NSW says.

The service also wants sum-insured home policies phased out in favour of full-replacement cover.

The recommendations to the Productivity Commission follow the Blue Mountains bushfires last October, when underinsurance was a significant issue, according to Legal Aid.

It says clients were unaware the cost of rebuilding had risen in bushfire-prone areas after changes to the building code in 2010.

Some were told the amendments would add up to $150,000 to the cost.

Legal Aid has also called on the Government to enact insurance law reforms addressing the sale of cover that is not fit for purpose.

And it wants action on the 2011 Natural Disaster Insurance Review’s recommendations on availability and affordability of flood cover.

“We saw a number of residents affected by the Riverina floods in 2010 and 2012 who told us they couldn’t afford to buy insurance for their homes because the insurer had raised premiums too high to account for the risk of flood.” Legal Aid told the commission’s inquiry into natural disaster funding.

Councils should be required to set up disaster recovery centres where lawyers can advise residents suffering trauma that affects their ability to comprehend and absorb information.

“Ordinarily capable individuals may experience difficulty in concentrating and often describe some level of memory problems.”

Legal Aid says insurers should be required to confirm in writing details of any settlement, even when claims are accepted and paid.

It says insureds often cannot recall conversations with insurer call centres and may not receive all their entitlements.