Many parts of Australia are currently facing catastrophic fire conditions, with those who have lost their homes only now realising they are underinsured.
Research has discovered a national crisis of underinsurance and with months to go in this bushfire season there are fears the already high figure of 1500 homes destroyed will only rise.
There is evidence many of those who have lost their homes through bushfires will find themselves unable to rebuild due to inadequate or lack of insurance.
A prime example of this is the October 2013 Blue Mountains bushfires, in which almost 200 homes were destroyed and more than 65 per cent of affected households were underinsured.
The consequences of the fires aren’t just personal but affects local communities; vital knowledge and social networks are lost as most are unable to rebuild and move away.
A common misjudgement made is that people insure their homes based on its market value but rebuilding is often more expensive. There are the logistics and removal of debris to consider, building and council fees, not to mention the building materials and labour involved to rebuild especially when both are already stretched due to demand. These unforeseen costs can increase a rebuild by 20 per recent or more and, unfortunately, are rarely made clear to insurance customers.
The other factor often overlooked is that banks can claim insurance payments to pay off mortgages. This leaves the only way to rebuild is to take out another mortgage, which means once banks are paid, people have nothing left to restart.
According to an article in The Conversation if communities are to recover from bushfires, a national policy reform for disaster preparedness and recovery needs to be implemented to cover all Australians, we cannot rely and trust in individual insurance policies alone.