Is Your Business Underinsured? What to Check Before Storm Season

Australia’s severe weather season runs from October through to April, and it’s the period when a policy that quietly fell behind on rebuild costs finally gets tested. Here’s what’s actually driving that gap, and a straightforward way to check whether your sum insured has kept up.

The Number Most Renewals Don’t Ask About

Every year at renewal, most businesses do one of two things: leave the sum insured exactly where it was, or nudge it up roughly in line with general inflation. Both approaches miss the same thing. The Insurance Council of Australia’s Insurance Catastrophe Resilience Report 2025–26, released 1 September 2026, found that national building costs rose around 30 per cent over the five years to 2026, against CPI growth of about 24 per cent over the same period, drawing on Cotality’s Cordell Construction Cost Index. If your sum insured has been tracking CPI, or hasn’t moved at all, it’s already behind the cost of actually rebuilding.

Worth flagging directly: the Cordell index is built on a standard house model, 200m², concrete floor, brick veneer walls, timber frame, concrete tile roof, so it measures residential construction cost movement, not a commercial building directly. For a commercial property, treat it as a proxy for how materials and trade labour costs are moving generally, not a substitute for your own quantity surveyor’s assessment. Howden Pacific’s CEO Matt Bacon, in a 2025 interview with the Australian Financial Review, put a specific figure on the non-residential side: non-residential construction inflation has risen around 27 per cent since COVID, and businesses that haven’t had a professional revaluation since are, on his estimate, commonly running around 30 per cent underinsured as a result.

That average, residential or commercial, understates the real problem either way, because the cost increase isn’t spread evenly across a building. It’s concentrated in exactly the components a storm damages first.

Storm Damage Costs More to Fix Than the Averages Suggest

The ICA’s report breaks the national average down by building component, and the pattern is stark. Roof tiles rose 77 per cent over the five years to 2026, more than three times the CPI rate. Windows and plaster products each climbed 48 per cent, plywood and board 45 per cent, copper pipe and fittings 41 per cent, structural steel and cement and mortar 39 per cent each. The report is explicit that the roof, window and plaster components carrying the steepest increases are the same elements hail, storms and cyclones damage first.

Labour tells the same story from a different angle. The report’s own trade-by-trade data shows roofer wages up 50.4 per cent over the five years to 2026 and glaziers up 46.4 per cent, both well ahead of the 24 per cent CPI benchmark, and both being exactly the trades a hail or storm claim needs most. If your sum insured was set from a general rebuild estimate rather than a component-level valuation, it’s very likely undercounting the specific materials and labour a storm claim will actually draw on.

Why This Isn’t Just an Inflation Story

There’s a second pressure compounding the first, and it’s one most renewal conversations don’t touch: repair work is now competing directly with new housing construction for the same trades and materials.

Between 2022 and 2026, the ICA’s data shows insurers received 409,094 claims relating to declared catastrophes and significant weather events, at a total insured cost of $11.3 billion. Zooming into a single year makes the competing-demand problem concrete: in 2025, five declared events damaged around 145,000 homes nationally, against roughly 173,000 new dwellings completed across the country in the same year. That’s not a coincidence of scale, it’s the same limited pool of tradespeople and materials being drawn on for both repair and new supply at once. Master Builders Australia separately estimates the industry needs another 116,000 construction workers nationally and currently has around 20,000 unfilled vacancies, a shortage that lands hardest on exactly the trades storm claims rely on.

The most recent season shows how quickly this scales. Seven declared events in 2025–26 generated more than $3.98 billion in insured losses across the industry, up from three events and around $2.2 billion the year before. The single costliest event of the year, a storm and hail system that struck Queensland and New South Wales in November 2025, generated $2.2 billion in incurred losses on its own, from more than 95,600 claims, coincidentally similar in size to the prior year’s entire seasonal total, but this time from one event rather than three. Every one of those claims draws on the same construction capacity a rebuild would need.

What This Actually Costs You If You’re Underinsured

This is the part most underinsurance conversations skip: the shortfall isn’t just the dollar gap between what you’re insured for and what a rebuild actually costs. Most commercial property policies in Australia include a co-insurance, or “average”, clause, requiring you to insure to at least a set percentage of full replacement value, commonly 80 per cent. Where a partial loss occurs and your sum insured sits below that threshold, the payout isn’t simply reduced by the dollar shortfall, it’s reduced proportionally against the formula the policy sets out.  Either way, confirming your actual co-insurance threshold and your current standing against it is worth doing with your broker directly, since the exact clause and percentage vary by insurer and policy.

How Common Is This, Really?

Vero’s SME Insurance Index, now in its fifteenth year and run by Suncorp, is the clearest national picture available of how widespread this is. The 2025 edition, published March 2025 and surveying 1,750 Australian businesses, found only 42 per cent review their sum insured annually, and almost one in ten described their own business as underinsured. Separately, over a third had experienced a negative claim outcome due to inadequate coverage, yet two-thirds still didn’t see underinsurance as a major concern, and 90 per cent had no formal risk management plan in place. The 2026 edition, published March 2026, found the pattern largely unchanged: 75 per cent of small businesses take only an ad hoc approach to risk management, and 47 per cent had experienced a revenue downturn in the previous 12 months, a pressure that tends to push an annual sum insured review further down the priority list rather than up it.

Howden’s estimate, cited above, puts the picture considerably starker still, around 70 per cent of Australian mid-sized businesses underinsured, with an average shortfall around 30 per cent. Both figures are worth holding in mind: Vero’s is a published, methodologically transparent national survey; Howden’s reflects one firm’s own client-base observation, cited in a single media interview rather than a published index. Readers can weigh which is the more likely picture for a business like theirs.

What Australia’s Severe Weather Season Actually Involves

Per the Bureau of Meteorology’s most recently published guidance, Australia’s severe weather season runs from October through to April, with an average of three to four cyclones crossing the coast each season and around nine to ten forming in the wider region. Flash and riverine flooding are more common during this period, particularly along the east coast of New South Wales and south-east Queensland, alongside an elevated risk of heatwaves and bushfire activity. 

A Quick Way to Check Your Own Exposure

1. Find out when your sum insured was last independently valued, not adjusted, valued. If the honest answer is “we’ve just been rolling it over,” that’s the first sign of a gap.
2. Ask your broker or insurer what percentage of replacement value your policy requires, and confirm whether you’re actually meeting that threshold.
3. Check whether your sum insured accounts for demolition, debris removal and professional fees, not just the physical rebuild cost. These are commonly left out of older valuations.
4. Confirm your business interruption indemnity period is realistic, given that repair timelines are now competing with new housing construction for the same trades.
5. Check whether your policy is on a replacement basis rather than an indemnity basis. An indemnity basis pays the depreciated value of the damaged property, not what it would cost to replace it, a meaningful difference most business owners don’t realise applies to their policy until a claim is underway.
6. Confirm whether your sum insured has a built-in escalation or inflation provision, and if so, whether the rate it applies actually reflects the material-specific cost movements above, rather than a generic, lower CPI-based adjustment.
7. If your last professional valuation predates 2023, treat that as the trigger to get a new one, given how much of the recent cost movement has occurred in storm-relevant materials since then.

Before the Season Sets In

None of this requires predicting whether a storm will hit your property this season. It requires confirming that if one does, your policy responds the way you assume it will. Given how specifically rebuild cost inflation has concentrated in storm-damage-prone materials and trades, this is a narrower and more urgent check than a general “review your insurance” reminder.

Want a professional review of whether your sum insured reflects current rebuild costs? Speak with Knightsbridge Insurance Group about your commercial property and business interruption cover.

Important Disclaimer: This article provides general information only and does not constitute legal or financial advice. Commercial property insurance requirements, sum insured calculations, and co-insurance clause terms vary significantly based on individual policies, property types, and insurers. Statistics referenced are drawn from the Insurance Council of Australia, Cotality, the Bureau of Meteorology, Howden, and Suncorp’s Vero SME Insurance Index, and reflect the most recently published data at the time of writing. Readers should obtain a professional valuation and consult with qualified insurance professionals before making decisions about their sum insured. Knightsbridge Insurance Group holds Australian Financial Services Licence 514855.

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