Thanks phb - this insurance company AHM/Medibank does not have the buffer built in to their policy unfortunately. But it is interesting about inflation. last year the premium went up by 19% but they increased the Sum Insured by only 10% - if costs are going up then surely the sum insured should go up in line with the premium? We have done the calculator today and it still gives the same cost as two years ago. But I think the real issue is that the insurance company can claim quotes of any amount they want in order to avoid having to manage the rebuild and just give the cash payout. There has to be some recourse against the insurance company over quoting on a possible rebuild. It was a new house, the slab and utilities are there, demolition is a seperate cost (also has been overquoted). It’s not what insurance is for.
Thanks Grahroll, We will take it to AFCA, I think that there needs to be a moral obligation for the insurance company to get competitive quotes for building - I think their quotes come from companies that don’t even do house building - I can’t find evidence that A.N.T. Renovations do any more than kitchen renos. And the other quote was from Insuraplex who have already done work on the garage. They charged the insurance company $8.5k for the garage demolition and subcontracted it to a demolition company who were charging $4.5k. I think there is a consumer story in here.
Usually a figure for demolition and removal of debris is included in a valuation or estimator. How much I don’t know. Every area and even a block can have different costs of demolition and removal due to access among other reasons (such as distance to the nearest disposal site). If someone is concerned as I noted above, then employing someone to give an individual and onsite quote is the best way to go.
I am unable to make a comment that supports or does not support your feelings on whether insurance companies want to just payout or not oversee the re-build as I have encountered both situations of payouts and oversight and not all involved my properties. Sometimes a business that provides quotes for insurance do not want the work, they over-quote the cost to avoid getting the work and retain a relationship with the Insurers for when they need work in the future. It would take a lot more investigating to determine if what you suggest is endemic in the insurance business by the Insurers.
Insurance is about covering risks. These risks are held both by the insurer and policymakers holder. Insurance companies assess claims under the policy taken out by the policy holder. Unfortunately if insurance companies were to cover any loss of any amount, we would potentially be paying higher premiums as insurance companies will be covering the own (higher) risks.
It is worth reading:
And determinations on the AFCA website. There are determinations which relate to cost of claims/settlements based on quotes, and how AFCA made determinations.
Premiums depend on both the sum required to pay out (which depends on rebuilding costs) and the chance that payout would happen (which depends on risk factors including extreme weather). At the moment household insurance is being hit by both so it is very common for the premiums to rise much more than any rise in sum insured.
Thank Syncretic - it may be common that premiums rise more than sum insured, but that doesn’t mean it is right or equitable. 9% more increase than the sum insured increase when there has been no other changes? that seems to high, and if that was true then sometimes they would sometimes come down too.
Thakns Phb, really interesting. I found some good determinations on the AFCA website that will be useful. But I still can’t find any where the insurer has deliberately inflated the rebuild cost in order to cash out to the sum insured so that they can avoid managing the rebuild.
It will be difficult for insurers to intentionally inflate rebuild costs to avoid doing the work. This is because they use a panel of contractors to quote and do the work for them. If they allowed their contractors to deliberately inflate their quotes, not only would it be collusion which is illegal, it means every claim amount settled by the insurer would also be inflated. These inflated costs would be passed onto the consumer through higher premiums.
It would also be an incentive for policy holders to request cash settlements to make quick dollar in the time of a tragedy… as the policy holder would accept the higher quote of the insurer as settlement, take the cash and then carry out works themselves cheaper.
The above is possibly why claims of overinflating claims may be unfounded, and not subject of AFCA complaints/dispute resolution.
Insurers, as @syncretic noted, don’t only increase premiums based on inflationary pressures. An insurer weights the cost of risk of an incident by increasing the policy rate when the possibility of incidents increases. As damage rates increase and so risk to the insurer increases, policy amounts can go up quickly and by large jumps. I am sure you have seen in the news about people with flood insurance where premiums have more than doubled because of the increased risk. Thefts, property damage, risk of fires, storm damage, and more have to be calculated by the Actuaries and premiums will be adjusted by those risks.
As insurance is also a shared risk of all those insured, even someone living in a relatively safe area will suffer an increase in premiums above inflation costs when others are affected, cost of the insurance for all is shared by all and as has been reported this is not always an even share. Some insurers also insure their risk of exposure, as their exposure risk goes up their insurance premiums increase. Insurance for insurers is a business for insurers of insurers to make profits and the consumer of their product/products is the means to make money (see Reinsurance), if they don’t make profits they increase the cost of their service until they do make the profits they consider is the right amount (taking into account the legislative regulatory pressures). The insured insurer then passes that increased cost onto their insured policyholders this insurance of insurers can be multiple levels deep, with more insurers up the chain. All insurance is a way for the issuers to make money, the only ones not making money are the end user in the chain… that is the final policyholder (the home owner or occupant).
Mr Hall says in Australia, households are working hard to keep paying their insurance, but increasingly people are underinsured.
“We are concerned that there is a growing protection gap and that’s driven by the higher cost of premiums driven by the underlying risk.”
A report from the Actuaries Institute last year estimated, one in eight households in Australia were facing home insurance affordability stress, following a 28 per cent increase in home insurance premiums. (My bolding)
While a policy holder may request a cash settlement, it is up to the insurer to decide the amount and if it is appropriate. It is always subject to the terms of the policy.
Whether the insured (policy holder) can carry out the works cheaper note the insurer includes all costs of managing and obtaining approvals for the works in their costs. A quote to rebuild provided directly to the insured may not include all the add on costs. There is no obligation on the insurer to pay out a higher amount if that is the insurers’s best quote. It is always limited to the maximum amount provided by the policy.
As each insurance company may treat a policy holder differently it seems rather hypothetical to suggest all insurers will act as suggested or all policy holders because they are only intent on making a cash profit on a payout.
Policy holders have a reasonable expectation of restitution at no added costs, plus any other cover benefits including temporary accommodation. It’s unfortunate to hear of a situation where a policy fails to deliver the best outcome. The alternative is to over value your insured property total loss replacement value/cost. In which instance the winner is the insurer who will receive a premium greater than required.
One might suggest some insurers are keen to see that outcome as it increases their margins and offsets increasing levels of risk to the benefit of increased profitability. It’s an industry that serves its share holders ahead of policy holders. Very different from the not for profit mutual associations which offered insurance as a way to share risk across their invested policy holders.
I agree!
Another reason to get a proper assessment of the cost of a re-build so the insurance value reflects as closely as possible the actual cost of a re-build (a little extra is useful to cover unexpected cost increases but not huge amounts).
I think that you are both way too trusting of the insurers and their motives - I’m tipping you are from that industry. You are right that they want to make profit - and one good way to do that in the case of a total loss is to not have to bother managing the rebuild - so they just get some over priced quotes - throw up their hands and say it is above the sum insured and offer to cash out.
I’m helping a vulnerable young family - nurse and mechanic with a four year old who insured their home with a good insurance company safe in the knowledge that if anything went wrong the insurance company would sort it out. They are now going to have to project manage a house rebuild on a tight budget in a tight timescale. The insurance company could do the rebuild much cheaper and better. I am convinced the quotes the insurance company have got are not competitively priced, but I don’t know how to prove that.
I’m not saying that they inflate every quote - only the ones that are around the cost of the sum insured -so that they can avoid doing the project management work. One of the quotes was from A.N.T. Renovations - I see no evidence that this company has built any houses, and I also have evidence that Insuraplex (the other quoter) have doubled the cost of work that they are doing for the insurance company. It just doesn’t sit right with me.
You would lose your money big time. We are here because we want to help Community members get the support they need, sometimes this advice is contrary to what a Community member wants. So I want to be very clear about why I have provided the general advice, it is because I want people to have the best possible outcome they can without getting themselves into difficulties they don’t need. I have never been in the Insurance industry, nor do I like many of the tactics they use. I do know how actuarial work is used, and I have made several large claims in my lifetime against insurances and have used AFCA. I appreciate that you feel the quotes from the ones that the Insurance company provided were inflated, they may have been, they also may not have been. One possible reason for that outcome is that the businesses that provided them to the Insurers may have over quoted as they had no interest in taking the work on, it is not the only possible reason.
The couple could seek a Scope of Works (SoW) from an architect or similar professional, that will give them a better idea of whether the quotes were in fact accurate, too low, too high, or the independent quotes are too low, accurate, or otherwise for the work required or any variation on those possibilities. A SoW will provide evidence of whether any of the quotes are realistic or not.
Usually on a re-build there are management costs built into the quote. Who manages it? Often the builder, who also hires a business to certify the works. This last house we built, we undertook some inspections over the build time and used a family member who was a builder to look at the works during the build, and hired a business to check the works before key hand over. Some repairs and adjustments had to be done by the builder, they weren’t large but we had paid for a premium build so we expected that the work would be premium.
As I stated right at the beginning of my first post about the situation, the couple need to go and get some good legal advice before they start any proceedings. They will then know the possible options for how to proceed, there are free Consumer Law support centres in every State and Territory who can give advice, that would be a good starting point.
They certainly advertise the fact they do Building and Construction and they are members of AICLA (Australasian Institute of Chartered Loss Adjusters) See the following links (this first one is ANT Renovations building and construction part of their website) Building & Construction, ANT Renovations - AICLA, and About AICLA - AICLA. They could be contacted to seek possible references about their work, they may provide them.
Insuraplex is also a member of AICLA. If the couple feel any of the two businesses have given wrongful quotes, the couple can lodge a complaint with AICLA. Again, to be sure of whether to take this step, I very strongly suggest they should get solid legal advice first. To complain without first getting proper professional advice is fraught with risk.
Do you have any evidence that insurers are increasing their premiums beyond the amounts demanded by the two factors that I mentioned or is it an assumption? If they are price gouging then that ought to show in the excessive profit margins they make; does it? If large companies that provide services do not make a profit they cannot stay in business, then they fold and the service is no longer available.
Do you know what the increase in risk profile has been and what it is predicted to be for the next few decades? If not how can you assess whether it is too high?
Sometime in the future the risk may well come down and premiums with it. When we have got all those old houses off the floodplain and the ones who are in forests too and sea levels are not rising and the frequency of severe hailstorms and cyclones has receded, in 100 or 200 years perhaps if humanity actually deals with climate change and enough time has passed for things to rebalance.
If that is too long to wait then a subsidy will be required from the taxpayer, who is you and me anyway so we would just be paying from another pocket. This has been seriously suggested as there are already people living in flood prone areas or in the tropics where insurance is either not available or the premiums are too high to afford. It may come to that or see more homeless.
I do not work, and have never worked, in the insurance industry. I do not receive any benefit for saying what I do from anybody, in some cases I don’t enjoy it much either.
I do not have magic solution to the problem but I am sure we need to forget about magic solutions as we are not at Hogwarts. There will be many more difficult talks over the next generation about who is to blame and who pays. This are just the start of the disruption to life on this planet - you ain’t seen nuthin yet.
I don’t agree as it isn’t in their interests to do so. The reason is that which you have indicated above assuming the information is correct/accurate. Say the rebuild cost is $465K as alleged by the homeowner and the insurance quotes are greater than the insured amount of $490K. Why would an insurer settle on the insured amount. It makes sense they will settle on the $465K. I assume that the homeowners aren’t pushing the insurer for a settlement of $465K, as it would make good business sense for them to do so as they save $25K. If the rebuild is $465 and the insurer pays our $490K, it doesn’t make sense as they are gifting the homeowner $25K above the cost of the rebuild. It doesn’t sound right which may mean that the quotes aren’t comparing apples with apples (there could be exclusions in the homeowner quote that are inclusions in the insurance quotes).
The issue appears to be that the house was underinsured and the point of disagreement is to whether it was or not. Underinsurance usually means that a cash settlement is only offered.
The link posted by @grahroll indicates that they do new builds.
I agree with @grahroll that your friends should possibly seek independent advice to ensure that they are treated fairly by the insurer and also to minimise their potential losses. While one may have good intentions to provide advice on what others think, this might only muddy the waters/lead them up the garden path and cause their expectations to be different to reality.
Thanks Grahroll - firstly, apologies about the industry comment, that was unfair and inappropriate, I appreciate your comments and thank you for your time spent on with this - it is really useful and helping me to help my friends. Scope of Works is a great idea, will look into getting that. I think the additional costs beyond the builder is the real issue here - if the insurance company manage the build they take on those costs which is what we want, but that should be included in the Corelogic rebuild calculator, but we are where we are and need to look forward.
I will make some more investigations into the builders and look at getting a lawyer involved and then go to AFCA. Thanks again for your guidance, we’ve really move forward with these conversations.
Just be careful that your friends do not to throw good money after bad. Get the advice first of whether there is a case, that should determine next steps. Consumer law centres as I said would be a good place to start, they are free and competent in the consumer law area. If required then look to hiring some others after the advice is given (who will be again determined by the advice)…
