Key points

• Building costs have increased significantly in Australia in the wake of Covid-19.
• This has led to issues relating to underinsurance among many commercial builders, as actual value does not match the value insured.
• This article explains how accurate quantity surveying is critical to avoiding the costs associated with underinsurance.

Rising building costs mean more underinsured builds

Between June 2022 and June 2023 the cost of building a new home increased by 22.5 per cent in Australia. According to figures supplied by the HIA, WA had the greatest increase, with 26.6 per cent annually, while Tasmania had the lowest at 18.2 per cent.

These cost escalations are a hangover from Covid-19, with supply chain issues and labour shortages continuing to have a major impact on builders. Unfortunately, these price increases have resulted in many builders being underinsured, as estimates do not match the actual value of construction.

Why does underinsurance happen?

Rising building costs are the key factor driving underinsurance. These rapid price increases have made it difficult for builders and home owners to keep their cost estimates up to date, which results in more cases of underinsurance.

Broking Manager Paul Schutz says issues with labour supply, labour rates and building material costs are just some of the factors that have led to cost escalation in the building sector.

“The ever-evolving construction market creates challenges for property owners to be up to date,” he says. “Although the frequency of claims has stabilised, claims costs have increased by 30 per cent due to these factors.”

How accurate quantity surveying helps

A quantity surveyor’s job is to estimate and assess the costs associated with construction projects, including material, labour and other related expenses. They’re like a financial expert, who understands all of the costs associated with building, including the costs often overlooked, like professional fees, permit and planning costs and waste removal.

A quantity surveyor is able to assess all the facets of a build and provide an accurate valuation, which can then be used to determine how much a building project needs to be covered for. Paul says quantity surveying mitigates the risk of underinsurance for builders and home owners.

“Builders need to be aware of cost escalation in building for labour and materials, and then adjust for it,” he says. “This is why it’s important to have quantity surveying for everything, including commercial buildings and residential homes.”

What if the numbers are wrong?

If a claim needs to be made and the property in question is not insured for enough, this can result in bills that insurance will not cover. Many policies even have penalties applied when properties are not insured for their true value.

Unfortunately, many people do not realise this is the case, and end up getting caught out because they thought the valuation they supplied was accurate. Engaging a quantity surveyor is critical to avoiding this pitfall.

What are insurers doing about this?

Some insurers are performing reviews on properties that have a high net worth or contain specialised features (like heritage buildings, museums, art galleries and other unique properties).

“Insurers are also reviewing properties that have not had their insurance values adjusted over the past three to five years,” Paul says. “In these cases, they are requiring owners to have a quantity survey completed.”

The impact on residential properties

It’s not just commercial buildings that need to be concerned about underinsurance. Residential properties, such as strata complexes, are also at risk. In these cases, owners need to ensure they are covered for the true replacement value of the entire property, so they are protected if they need to make a claim. Once again, an accurate quantity survey is critical. (Read more about how strata complexes are impacted here.)

Worried about being underinsured?

Contact us to discuss organising a quantity surveyor for your construction project. We can recommend commercial and residential professionals, who have the skills to accurately review your site. We can then update your policy to ensure you’re comprehensively covered.

Get started now.