Thursday Thought-Leaders: Underinsurance & Renewal Adequacy

Underinsurance Crisis Deepens

Australia and New Zealand's insurance markets are grappling with persistent underinsurance as economic pressures mount. Inflation has pushed rebuild costs higher, with supply chain delays adding to the burden. In 2025, the Vero SME Insurance Index revealed that while 10% of small and medium enterprises admitted inadequate coverage, industry estimates suggest the true figure nears 70% for property and assets. This mismatch leaves businesses vulnerable when disasters strike, as seen in recent flood and wildfire cycles.

Regulatory shifts are amplifying the urgency. New Zealand's Contracts of Insurance Act, passed in November 2024 and phasing in through 2027, modernizes rules to align with Australia and the UK, imposing stricter duties on policyholders for accurate disclosures during renewals. Meanwhile, the Fire and Emergency New Zealand (FENZ) levy changes, effective July 1, 2026, shift calculations from indemnity to full sum insured values, potentially hiking costs for underinsured properties by eliminating lower indemnity-based options.

Climate volatility compounds these issues. Aon’s 2026 outlook highlights sharpened risks from severe weather in the region, with Australia facing over 1,000 active class-action lawsuits weekly, inflating liability exposures. Public-private insurance programs, like Australia’s Cyclone Reinsurance Pool and New Zealand’s Natural Hazard Commission, aim to bridge protection gaps but have faced fiscal strains—such as the US National Flood Insurance Program's debt burden serving as a cautionary parallel—with high operational losses and delayed claims processing.

Non-obvious tensions emerge between affordability and resilience. Insurers offer premium discounts for risk mitigation, like Japan’s seismic retrofitting incentives, but uptake remains low in AU/NZ due to upfront costs. Stakeholders clash: governments push for broader coverage to reduce post-disaster bailouts, while insurers demand accurate valuations to sustain profitability in a softening market where premiums fell 5-7.5% in strata lines in 2025. Risks of inaction include not just personal bankruptcies but broader economic drags, as underinsured recoveries slow community rebuilds after events like the 2023-2024 storms.