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The bushfires in Australia have ravaged millions of hectares, left thousands of people homeless and killed millions (if not billions) of native animals.
One demographic group that may be overrepresented in the coastal and mountain regions, that are particularly prone to bushfire, are retirees that have decided to relocate from more urban areas for a sea change or tree change.
Typically, this has involved a change to a more relaxed lifestyle, away from city life and its associated pressures. Unfortunately, what this summer has also highlighted, is that in many cases it puts retirees at an increased risk of bushfires.
Along with a comprehensive bushfire survival plan (see state agencies such as NSW Rural Fire Service, South Australian Country Fire Service and Vic Country Fire Association for guidelines), retirees in these areas need to make sure they have an appropriate level of home and contents insurance.
Home underinsurance is a big issue in Australia, the extent of which is often highlighted during a disaster such as this.
Federal Member for Macquarie, Susan Templeman, has written of her own experience of being underinsured in the 2013 bushfires in the lower Blue Mountains and that, even now, there are many vacant blocks around her rebuilt property because residents did not have enough cover to rebuild.
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Research undertaken by Legal Aid NSW in relation to those fires found that of the 68 survey participants who were insured and had suffered a total loss of their home, 82% experienced some level of underinsurance for their home building policy and/or home contents policy.
In home building policies, underinsurance amounted to $186,188 per household, on average (totalling 28% of rebuilding costs). Read more here.
The Australian Securities and Investments Commission (ASIC) conducted similar research after the Canberra bushfires in 2003, and found affected homeowners were underinsured by 27 per cent on average.
What level of home and property insurance is enough?
Unlike life insurance, total and permanent disability (TPD) and income protection insurance, home and contents insurance is not an insurance that can be taken out via superannuation.
Retirees need to navigate this area carefully and for tree/sea changers it can be difficult estimating rebuilding costs in a new postcode. One of the most common mistakes is to calculate an amount to be insured based on the purchase price of a home. This will be woefully insufficient in bushfire prone areas as a result of changes to the building code – Building Code of Australia (2010) – which may require such things such as bushfire shutters and ember guards to be installed on the house and water tanks to be installed on the property, depending on the area’s bushfire attack level (BAL) rating.
For potential tree changers, a property’s BAL rating should be an important consideration before purchase. Your state’s rural fire fighting service can help you find out if a property is in a bushfire prone area and you can then use a consultant to determine a property’s BAL rating.
|Bushfire Attack Level|
|BAL||Description of risk|
|BAL – LOW||Lowest risk from a potential fire.|
|BAL – 12.5||Risk is primarily from potential embers during a fire.|
|BAL – 19||Moderate risk, particularly from embers and burning debris.|
|BAL – 29||High risk, particularly from embers, debris and heat.|
|BAL – 40||Very high risk. Likely to be impacted by embers, debris, heat and potentially flames.|
|BAL – FZ||Extreme risk. Directly exposed to the flames of a potential fire front.|
Source: NSW RFS
The Legal Aid Research into the 2013 fires suggested that meeting the BAL requirements could add an additional $150,000 to rebuilding costs on a home and other research by academics at the University of Wollongong suggest that rebuilding to BAL-FZ requirements could add an additional 20% or more to the cost.
Insurance providers have online calculators that can help calculate the potential value you need to insure but the accuracy of these calculators varies. The best solution would be to ask a local builder familiar with the building requirements in the area for an estimate. Don’t forget to include demolition and debris removal costs (which could include the removal of asbestos found in older properties) and the cost of using an architect.
Some insurers will offer a ‘safety net’ policy, which allows a buffer of up to around 30% if the amount insured is insufficient and a select few insurers also offer total replacement polices – both policy options that come at an additional cost.
How to increase your level of cover
Each year your policy renewal documents will come with an increased insured value for your property, but these values are usually based on inflation, not the extra rebuilding costs you might face. In many cases, you may need to increase your value insured by a much larger amount than the insurer suggests.
To do this, it should be as simple as calling your insurer and asking for the value insured to be increased. It’s a call most insurers will be happy to take, as an increased value insured also means increased premiums for them.
When you make the change, check with the insurer if there is a waiting period. While these usually apply for new policies, they may also apply for upgrades and may mean the extra cover doesn’t kick in until 48 or 72 hours after you increase it.
It is also crucial to read your policy’s product disclosure statement (PDS) to make sure it covers you for everything you need and doesn’t have any odd exclusions for things such as outdoor furniture.
Need to know
Insurance Council of Australia manager communications and public relations, Lisa Kable, also says it is important that consumers understand ‘insurance embargoes’.
“An embargo, introduced by individual insurers according to their own underwriting rules, typically prevents insurance being purchased when an event is known to be extremely likely or already impacting an area,” she says.
An insurer may still sell a policy in these circumstances, but may stipulate a time period within which they will not accept a claim against the policy, for example 72 hours or 7 days. Not all insurers will implement embargoes so it’s important to shop around if you need to take out a new policy.
Making a claim
If you are in an unfortunate position of losing your home, it’s important that you make a claim as soon as you can. The Insurance Council of Australia reported that, as at 10 January 2020, combined bushfire catastrophe losses since 5 September 2019 stood at $995 million from a total of 11,272 claims.
A claim can be made on a policy as soon as it is safe for you to return to that property to survey the damage and calculate what needs to be claimed.
Your policy may also provide for accommodation while the property is rebuilt (check the PDS) and there may also be government allowances now available that can help with immediate costs. In some very limited circumstances you may be able to access superannuation on compassionate grounds if it looks like your property or land is going to be repossessed, but any funds made available would only be to cover a mortgage for a limited period of time.
If you haven’t done so already, take this opportunity to pull out your insurance policy documents, review the amount insured and increase it if you need to and are able to. If you don’t have home and contents insurance, now would be a good time to consider such a policy.
We would also like to express our sincere condolences to everyone impacted by the bushfires in Australia and our great gratitude to the volunteer firefighters and all emergency services who have worked tirelessly to keep us safe.
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