The question our clients keep asking: What Happens If Our Property Is Underinsured in Australia?

If your property is underinsured, your insurer may reduce your claim payout proportionally. This means even a partial loss could result in a significantly lower payout than expected, leaving you to cover the shortfall.

The scenario most people don’t see coming

A business owner insures their commercial property for $500,000.

After a fire, the rebuild cost is assessed at $800,000.

The claim isn’t denied, but it’s reduced.

Because the property was only insured for 62.5% of its actual value, the insurer applies what’s known as the average clause.

So even a $200,000 claim might only pay out around $125,000.

The gap? That comes out of your pocket.

Why underinsurance happens

This is where most people get it wrong:

• They insure based on market value, not rebuild cost
• They don’t account for rising construction costs
• They haven’t reviewed their policy in years
• They assume “close enough” is good enough

It’s not.

What the policy actually says

Most commercial property policies in Australia include an average clause.

In simple terms:
If you’re underinsured, you share part of the loss.

Even if the damage is partial.

How to avoid it

• Review your sums insured annually
• Use updated rebuild cost estimates (not guesswork)
• Adjust for inflation and construction increases
• Get advice before renewal — not after a claim

Final thought

Underinsurance isn’t obvious — until it’s too late.

At All Risk Protection, we regularly review policies for clients across the Sunshine Coast, Brisbane, Gold Coast, Central Coast, Sydney and the ACT to make sure cover reflects real-world rebuild costs, not outdated estimates.

Need Help Reviewing Your Cover?

If you would like to review your current insurance arrangements or understand how your policy would respond in a claim scenario, the team at All Risk Protection would be happy to assist.