What would it really cost to rebuild your building today?

Quick answerUnderinsurance is when your building is insured for less than it would cost to rebuild. It hurts you two different ways. On a partial loss, a co-insurance clause can scale your payout down in proportion to how far short you were. On a total loss, you are paid your full sum insured and no more, and you cover the gap to the real rebuild cost yourself. When valuers actually measure it, the average building comes up around 24% short, and 31% short for industrial property (MCG Quantity Surveyors).

Picture a building that would genuinely cost $2.2 million to rebuild today, insured for $1.5 million. The owner thinks they are covered. Here is what that gap does.

Scenario one, a partial loss. A storm causes $300,000 of damage. Because the sum insured is well below the real rebuild cost, the insurer applies the co-insurance clause (also called an average clause). Most commercial policies test your sum insured against at least 80% of the true rebuild value, not the full 100% (some wordings set the bar a little higher). This building needed to be insured for at least $1.76 million and carried $1.5 million, so the payout is scaled to roughly 85% of the claim: about $255,000 paid, and the owner finds the remaining $45,000. The loss was nowhere near the sum insured, and the owner still pays.

Scenario two, a total loss. The building is destroyed. The insurer pays the full sum insured, $1.5 million, with no scaling at all. But it costs $2.2 million to rebuild. The owner is standing on a cleared block, $700,000 short, with a mortgage that did not disappear.

Two different mechanics, one root cause: the number was wrong. This is why we never let the two cases blur together, and why the fix is never "insure for more to be safe". It is to insure for the truth. For the full mechanics of the co-insurance clause, the exact formula, and real determinations where it has bitten, see The Co-Insurance Clause: What Every Building Owner Must Know.

Quick answerA calculator gives you a number. A professional valuation gives you certainty. A quick online calculator cannot properly account for demolition, debris removal, professional and council fees, code-upgrade costs, inflation, or anything specific to your site, and it is not the approved-valuer valuation the escape clause in the section above asks for. So a calculator can leave you exposed to the exact penalty that insuring at the full valuation figure would have taken off your policy.

Some brokers set your sum insured with a quick online calculator. It is fast, and it produces a confident-looking figure. What it does not produce is certainty. A calculator works off broad averages and a few inputs. It does not see the cost of demolishing and clearing your specific site, the professional and council fees on a real rebuild, the code upgrades a modern rebuild triggers, or the way construction prices have moved since the tool was last calibrated. That is how a calculator can hand you a number that looks fine and still fails the 80% test on the day you claim.

There is a second reason it matters here. The escape clause described above does not switch off for "a number off a calculator". It switches off for a sum insured set to the full figure in a current valuation from an approved valuer. So a calculator does not just risk being wrong. It cannot unlock the one mechanism that would take the underinsurance penalty out of your policy altogether. That is the difference between a figure and a valuation, and on a commercial building it is worth real money.

Trusting the insurer's own calculator is the obvious thing to do. That is exactly what an owner in a published determination did, setting the amount their building was insured for at $495,000. It is also where the responsibility quietly stays with you.

The building was a total loss after a fire. The claim was lodged on 04/03/2024. Two builder quotes obtained by the insurer came back at $637,659 and $656,674, both well above the cover they held. On a total loss the only question left is the maximum the policy will pay. The insurer paid the sum insured plus the additional benefits in the policy, and that was the end of it. The rest was theirs to find.

They took it to the Australian Financial Complaints Authority, the free service that settles insurance disputes without going to court. Two of their arguments went to the number itself. First, that the insurer's calculator had misled them. Second, that their cover should have kept pace with their premium, because the premium had gone up 19 per cent while the sum insured had gone up only 10 per cent. Both were rejected. On the calculator, "it would be unfair for an insurer to be held liable for any shortfall in estimations". On indexation, "there is no requirement for an insurer to adjust this value when increasing its premiums". They were awarded $2,000 for the way the claim was handled, and nothing towards the gap.

That was a home policy, and the determination decides nothing about commercial cover. The mechanism is the same one sitting inside a commercial building policy, and that is our point rather than the determination's. A calculator gives you a starting estimate. A premium rising every year is not evidence that your cover is rising with it. And on a total loss the insurer pays the rebuild figure written on your policy and not a dollar more towards the rebuild, so that figure has to be measured rather than guessed. That is the reason we commission a registered valuer's desktop assessment at no cost to you, and do it again at renewal: so the number your whole policy depends on is a valuer's number, not a calculator's.

Quick answerWhen we value your building, you do not do the work and you do not pay for the report. We collect the building details, commission an independent desktop valuation from a registered valuer, and use the result to set your sum insured to a real rebuild figure. Where we find a gap, we close it at a pace you can manage, with options at every step.

Nobody is coming to check your sum insured for you. Not the insurer, and not the ombudsman.

In a published determination, a landlord's rented property was destroyed by fire in July 2021. Over the six years before that, the owner had wound the amount the building was insured for down three times, from $250,000 to $185,400, to hold the premium down. In all that time the property had never been assessed for what it would actually cost to rebuild. The insurer accepted the claim and paid the sum insured, $3,245 under the inflation provision and $16,900 for lost rent. The owner then asked for $131,355 more toward the rebuild, and got nothing more toward the shortfall. The Australian Financial Complaints Authority held the onus of adequately insuring the property sat with the owner, not the insurer, and put it plainly: "at any time during the period of insurance, the complainant could have arranged an assessment of the property to ascertain an approximate rebuild cost, but this was not done."

That was a residential landlord policy. Our point, not the determination's: on a total loss the sum insured on your schedule is the ceiling on the rebuild under a commercial policy's building section too. If nobody has ever measured that number against real rebuild cost, the difference is yours to fund, on a cleared block.

So we take that job off you. We commission a desktop valuation at no cost to you when you come on board and again at renewal, which means keeping your figure current is simply how your policy is run. You do not have to remember to ask.

Here is what happens when we value your building:

1. Your building details get collected: construction type, floor area, fit-out, external improvements, and anything that changes what a rebuild would really cost.
2. We commission an independent desktop valuation from a registered valuer at no cost to you. What you receive is a registered valuer's desktop assessment, prepared to the approved-valuer standard, so it is the kind of valuation the escape clause above recognises, not a calculator estimate.
3. The desktop valuation works out the full rebuild cost: demolition, debris removal, professional fees, council approvals, code upgrades and inflation, not just the bricks.
4. You review the result with us and hear what it means for your cover, in plain language. No jargon, no pressure.
5. Your policy is updated to reflect the real number, and because we do this again at every renewal, it stays current instead of drifting out of date.

If the desktop valuation comes back higher than your current sum insured, which it often does, we do not hand you a take-it-or-leave-it bill. We close the gap at a pace you can manage, with real options at each step, including where a higher excess keeps full cover affordable. The goal is a number you can rely on, arrived at in a way you can afford.

This is what you receive. Not a number in an email, but a registered valuer's desktop assessment that shows its working. You see exactly how the number was reached, which is precisely why it holds up where a guess does not.