What would it cost to rebuild your home or replace its contents if a bushfire or another natural disaster struck?

Whether you’re a homeowner or a renter, it’s likely you’ve needed to ponder this question when determining your level of household insurance cover. But with elevated bushfire risk forecast for much of southern and eastern Australia this summer, and the weather bureau and CSIRO recently predicting longer fire seasons and more extreme conditions, now is a wise time to review your estimates.

In the past year, fires have destroyed three homes in Esperance (WA), 90 homes at Pinery (SA) and 116 along the Great Ocean Rd in Victoria. Another 181 homes and buildings were lost in January at Yarloop in Western Australia.

Insurance Council of Australia data shows that 1.75 million (16 per cent) of Australian land parcels have some degree of bushfire exposure. Tasmanian homeowners are the most bushfire-exposed (64 per cent of land parcels), followed by WA (34 per cent), Victoria (24 per cent), NSW (22 per cent) and SA (19 per cent).

Though about 5 per cent of properties are not insured, disasters can unfortunately expose another issue: that of underinsurance. In the aftermath of disasters, distraught householders too often discover they have not bought enough insurance cover to fully rebuild or replace their home and contents. They may be forced to borrow money, or sacrifice size and features to rebuild their home on a smaller budget. In some cases, they simply can’t afford to rebuild.

Changes to bushfire zoning regulations brought in by state and local governments over recent years means some older homes must be rebuilt to a much higher standard than they were originally constructed. This can substantially increase rebuilding costs, yet many households are unaware if their home has been rezoned, and whether it affects their insurance needs.

A recent survey for the Insurance Council of Australia’s financial literacy program, www.understandinsurance.com.au, found only one in 20 respondents was confident they could accurately estimate the value of their contents; 10 per cent thought their estimate was out by more than $5000, and 35 per cent had no idea. An earlier survey found eight out of ten households believed they were underinsured.

The way policyholders calculate their sum insured is a key reason for this uncertainty. About half just guess. Only 13 per cent used an online insurance calculator (such as the free and independent tools available at http://understandinsurance.com.au). These calculators help householders get a much more reliable estimate of rebuilding costs, or the cost of replacing household possessions. Almost 90 per cent of those who used an online insurance calculator found they provided a useful valuation and were easy to use.

Other tips include this disaster season include:

  • Be sure to make yourself aware of what natural hazards your home is exposed to. Does your insurance policy cover those risks? Local councils typically have the best information about disaster risk in a local area.
  • Contact your local council to ask about bushfire zoning for your property. If you are on bushfire-prone land, it’s a good idea to calculate your home’s Bushfire Attack Level (BAL) to understand the likely impact on rebuilding costs. A good online insurance calculator will help you do this, or there are professional consultants available.
  • Don’t wait until the smoke starts wafting over the horizon before trying to buy a policy. Most new home insurance policies have an exclusion period for claims, so by the time a bushfire is approaching, it will almost certainly be too late to get cover.

For more tips about protecting against bushfires and other natural disasters, as well as free and independent insurance calculators, visit http://understandinsurance.com.au/types-of-disasters/bushfires

Australia's top five most destructie bushfires*

Bushfire Insured losses
Black Saturday bushfires (VIC), February 2009 $1.1 billion
Canberra bushfires (ACT), January 2003 $350m
Blue Mountains bushfires (NSW), October 2013 $193m
Ash Wednesday bushfires (VIC and SA), February 1983 $176m
Pinery bushfires (SA), November 2015 $172m

* Original figures, not adjusted for inflation