Are You at Risk of Underinsured Property?

In today's market, the rising cost of construction and materials has created a significant risk for property owners and businesses: underinsurance. Whether you own a commercial office, retail premises, or industrial property, being underinsured means your current policy may not cover the full cost of rebuilding or repairs if disaster strikes.

This is not a niche issue, it's a widespread problem. According to market research, between 70% to 80% of commercial properties in Australia are underinsured. That means the vast majority of property owners may be left out of pocket if they experience a major loss.

So what causes this insurance gap, and what can you do to make sure your property is properly covered?

What Does Underinsured Property Mean?

Put simply, a property is underinsured when the sum insured on your policy is less than the actual cost to rebuild the property to the same standard it was before a loss. It doesn’t just include bricks and mortar, but also demolition, removal of debris, architect fees, and compliance with modern building codes.

This shortfall often happens because:

• Property valuations are outdated

• Construction and material costs have increased rapidly

• Owners estimate value based on market price rather than rebuild cost

• Fit-outs, upgrades, or extensions haven’t been included in the insured value

Being underinsured can have serious financial consequences if you need to make a claim.

The Financial Impact of Being Underinsured

Many business owners assume their insurer will pay the full cost of rebuilding if their premises are damaged or destroyed. Unfortunately, if your property is underinsured, you may only receive a portion of the total cost, based on the insured sum.

This can leave a substantial gap you’ll need to fund yourself.

Here’s an example:

Let’s say your building’s rebuild cost is $1.2 million, but you’ve only insured it for $800,000. If a fire causes $600,000 worth of damage, your insurer may only pay a percentage of that claim, often in proportion to the underinsurance,meaning you’d be responsible for the remaining amount.

This can derail your operations, stall your recovery, and significantly impact your business’s financial health.

Why Property Valuations Matter

The only way to ensure your insurance cover reflects the true cost of replacement is to get an up-to-date, independent property valuation. Many commercial property owners haven’t reviewed their insured values for years, often since the property was first acquired or built.

Given the sharp rise in construction and labour costs in recent years, particularly across Australia, a valuation that was accurate just two years ago may now be significantly off.

Regular valuations help ensure your insurance policy keeps pace with actual costs, offering peace of mind that you’ll be properly protected in the event of a claim.

How Often Should You Update Your Property Valuation?

Most insurers recommend reviewing your commercial property valuation every 1–3 years, or sooner if:

• You’ve completed renovations or extensions

• There’s been a significant shift in construction costs in your area

• You’ve changed how the building is used or occupied

• Your insurance policy is up for renewal

Keeping your sum insured aligned with replacement value reduces the risk of underinsurance and helps ensure your business can recover quickly after an insured event.

Don’t Let Underinsurance Jeopardise Your Business

At Broad Risk, we help business owners and property investors understand the risks of underinsurance and take practical steps to protect their assets. Through access to trusted valuation services and tailored insurance advice, we’ll help you ensure your cover is both accurate and adequate.

Need Help with Property Insurance or Valuation?

If you’re unsure whether your property is properly insured, or would like assistance arranging a professional valuation, we’re here to help. 

Contact the Broad Risk team today for personalised advice and support in managing your commercial property risk.

Disclaimer:

The information and advice provided by Broad Risk Insurance Brokers is general in nature and does not take into account your individual objectives, financial situation, or needs. You should consider whether the advice is appropriate for you and read the relevant Product Disclosure Statement (PDS), policy wording, and Target Market Determination (TMD) before making any decision about purchasing, renewing, or cancelling an insurance policy. If you require personalised advice that considers your specific circumstances, we recommend speaking with one of our qualified insurance brokers. For more information, please contact us at warren@broadrisk.com.au or visit our website at https://www.broadrisk.com.au