How many Australian households are underinsured?

Insurance premiums, rebuilding costs and climate-related disasters have all increased the potential for home insurance underinsurance in Australia.

Insurance prices in Australia rose 52.7% between the December quarter of 2019 and the March quarter of 2026, according to the Australian Bureau of Statistics' (ABS) Consumer Price Index (CPI) insurance subgroup. Over the same period, the ABS Producer Price Index (PPI) for house construction output shows that prices rose 48.3%. This means the cost of construction work increased by almost half during the period under review. Based on these figures, a sum insured set in December 2019 and never adjusted would equal about 67.4% of the equivalent March 2026 index value, an index-based shortfall of 32.6%.

How underinsurance is measured in the HILDA Survey

The 7.8% and 15.1% figures both come from a single yes/no question, which shapes what the numbers can and cannot show. Homeowners with building insurance were asked whether their insurance would cover a complete rebuild if their home needed one. People with contents insurance were asked whether a claim would cover replacing all their contents.

That makes this a measure of what households believe about their own cover. It records respondents who believe their policy falls short, but it cannot identify households that incorrectly believe they have enough cover. The 7.8% result is a self-reported estimate, not a verified comparison between each policy and an independently assessed rebuild cost. Respondents may misjudge adequacy in either direction, so the result should not be described as a statistically verified floor.

Why Australian homeowners report being underinsured

Not updating cover was the most common reason homeowners gave for being underinsured on their building:

• Had not got around to updating their cover: 31.8%
• Said cover was unaffordable: 30.8%
• Thought the risk of a large claim was small: 19.5%
• Thought full cover was poor value: 17.5%

The pattern for contents insurance was almost identical, with 33.7% citing affordability and 31.4% saying they had not got around to updating their cover.

Contents insurance shortfalls are more common than building insurance shortfalls

Contents insurance ownership varies by tenure: 90.4% of outright owners and 84.7% of owners with a mortgage hold it. This compares with 30.6% of private renters and 14.9% of social housing tenants. This is a different pattern from building cover.

Once a household has a policy, the reported adequacy of that cover is relatively consistent across most tenure groups. Underinsurance rates for contents were 15% among homeowners and 15.1% among private renters. The exception is social housing, where, among the 14.9% of tenants who hold contents insurance, 27.1% say it would not replace what they own.

Why Australia has no official underinsurance statistic

The 7.8% figure captures only one version of the question. It records how many households believe their cover falls short, but does not test any policy against an actual rebuilding cost. This means it cannot identify the households that would discover a shortfall only after a total loss. No Australian source measures that, and no Commonwealth statistical agency publishes an underinsurance figure.

The ACCC set out why in its 2019 Northern Australia inquiry. Its consumer research allowed inferences about the potential for underinsurance, but concluded that underinsurance could not be estimated across a general region with confidence and drew no conclusions about its prevalence.

Measuring underinsurance outside a disaster would mean assessing the appropriate level of cover for each individual property and its contents, then comparing that against the sum insured that the household has nominated.

It would also require subjective judgements about what an appropriate level of cover looks like. The ACCC described assessing enough individual properties to produce even a regional estimate as a costly undertaking.

Other bodies have reached a similar conclusion:

• APRA modelled around 10 million houses out to 2050 in its March 2026 stress test, working with five insurers that write about 80% of the home insurance market. The report states that underinsurance was not directly modelled because of its complexity.
• The ABS has been approved to link insurers' policy data, including sums insured, to its integrated data asset, but that project was still listed as open in July 2026 with no analytical release.
• The ACCC's insurance monitoring role ended on 30 June 2026 without producing a measure.

Rebuild costs rose first, increasing the sum insured required to keep pace with construction prices. Insurance prices followed, increasing the cost of maintaining cover. Those pressures overlapped for about two years and may have increased the risk of inadequate cover, although the available data do not quantify that effect.

Both annual growth rates have slowed from their peaks. In the year to March 2026, insurance prices rose 3.7%, while house construction output prices rose 4.1%.

The annual increase in insurance prices peaked in early 2024 and had slowed substantially by March 2026. However, the cumulative increases in insurance and construction price indexes since 2019 remain. These data do not show how much those increases changed the prevalence of underinsurance.

How rebuilding costs and premiums can affect insurance cover

Rising construction costs are one of two main routes by which APRA's modelling expects Australia's insurance protection gap to widen over the 25 years to 2050. The two 2026 stress tests that APRA ran to that year treat the relationship between rebuild costs and premiums as a forward risk:

• Physical risk dominates: more frequent and severe weather events push premiums up.
• Economic transition dominates: weather losses matter less, and rising construction costs become the main factor pushing premiums higher instead.

How rising insurance costs may contribute to underinsurance

The House Standing Committee on Economics reported in October 2024 on insurers' responses to the 2022 floods. In its chapter on policy design, the committee noted evidence from insurer submissions that some policyholders were reducing their sums insured compared with previous years to help manage rising premium costs. The submissions came from Insurance Australia Group and Suncorp Group.

The ACCC reported a similar finding the following year. Its fourth insurance monitoring report, published in July 2025, included a section titled Affordability pressures are contributing to underinsurance and non-insurance.

This is also consistent with the ACCC's findings from five years earlier. It found that 19% of Northern Australian residents with a sum insured policy had either contacted an insurer's call centre or used its online calculator to help determine their sum insured. Of those policyholders, 17% chose a lower sum insured than the amount recommended, with cost being the main reason given.

None of these figures measures underinsurance. They show the number and cost of claims, not whether the amount paid was enough to rebuild or replace what was insured. The committee did not publish a count of claims affected by inadequate sums insured, and no official national source provides one.

Historical disasters have increased rebuilding costs by up to 75%

Historical records show that rebuilding costs have increased by as much as 75% after a major disaster. When many homes are damaged in one area, increased demand for builders and materials can raise local rebuilding costs. This means a sum insured that was adequate before an event may become insufficient afterwards.

The cited evidence measures different outcomes, rebuilding-cost increases of 35% to 75%, average shortfalls among selected households, and underinsurance prevalence among residents affected by a particular disaster. These findings are not directly comparable and cannot be used to estimate national underinsurance. They show that the scale and form of underinsurance can vary by event, location and methodology.

Cost was the dominant reason in both cases. Among residents without contents insurance who had considered taking out a policy, 42% said they could not afford the premium, while 36% said they could not justify the cost. A further 19% believed their contents were not worth insuring, compared with just 3% of homeowners who had no building insurance.

Home building insurance gaps across Australia's states and territories

The ACCC estimated that about 20% of potentially insurable properties in Northern Australia and about 11% in the rest of Australia had no home building insurance. This estimate is based on insurer policy data compared with census-derived counts of potentially insurable properties. The state pattern varied widely, with an even larger gap between capital cities and regional areas in some northern jurisdictions.

These staggered adoption dates add a separate layer to the underinsurance question. A rebuild that must now meet updated energy-efficiency or livable-housing standards can cost more than the original building. This means a sum insured set before a jurisdiction adopted these provisions may not account for the additional cost of meeting newer standards.

Key insurance recommendations from the 2024 flood inquiry

The House Standing Committee on Economics made 86 recommendations. Three deal directly with sums insured, and all three propose changes to the General Insurance Code of Practice rather than to legislation.