You open your renewal notice and the building sum insured has gone up again. Maybe the premium has jumped too, and you’re wondering whether your home has suddenly become worth more or whether something has gone wrong. The increase may reflect automatic indexation, but a standard adjustment cannot account for every difference between different property classes or the individual features that affect rebuilding costs.

This article explains how auto-indexing works, why it can produce a big jump in a single year, and how to tell whether the new figure is realistic. It also covers when a formal insurance property valuation is worth paying for.

Summary

Many insurers adjust your building sum insured each year using a percentage linked to a building cost index. That’s convenient, but the adjustment is applied across the board, so it may not match your property’s features, your renovations or local rebuilding conditions. A big jump can mean real cost pressure, a catch-up after several flat years, or a figure that’s simply wrong for your home. The fix is to check the basis of your policy, compare the sum insured against a realistic rebuild cost, and understand who is qualified to assess rebuilding costs if the figures don’t add up. Being underinsured can reduce your claim payout, and being overinsured means paying for cover you don’t need.

What an Insurance Property Valuation Actually Measures

An insurance property valuation estimates how much it would cost to rebuild your building if it were destroyed, using materials and construction methods similar to the original. Valuers call this the reinstatement or replacement cost. It’s the figure insurers use to set the building sum insured.

Replacement cost isn’t market value

This is the most common mix-up. The market value of your home is what a buyer would pay for it, and that includes the land. Insurance doesn’t cover land, and a suburb that’s boomed can have a market value far above the cost of rebuilding the house on it. Likewise, a home in a slower market can have a market value below its rebuild cost.

If you’re using your sale price or council valuation as your insurance figure, you may be insuring the wrong thing.

How Auto-Indexing Works and Why It Can Jump

Auto-indexing means your insurer increases your sum insured automatically at renewal, usually by a percentage tied to a published building cost index. You don’t need to do anything, which is the point. The trouble is that a single percentage has to work for every policyholder at once.

The index is applied to your old number

The index adjusts whatever figure is already on your policy. If that figure was out of date, the index builds on the error. For example, if your sum insured was set several years ago and hasn’t been reviewed since, a large index increase applied to an already low number may still leave you short. Alternatively, if the original figure was inflated, the index makes that worse.

Either way, the change you see at renewal reflects the starting point as much as this year’s costs.

A uniform index doesn’t suit every home

An index measures average cost changes across construction. It doesn’t know that your home is a double-brick, single-storey place with a slate roof and a pool, or that it’s a weatherboard cottage with decorative timber detailing. It also doesn’t account for a sloping block that makes access harder, or a heritage listing that requires specialist materials.

Two homes in the same street can have very different rebuild costs, but an automatic index treats them the same.

Renovations often aren’t reflected

If you’ve added a bathroom, upgraded the kitchen, built a granny flat or finished the garage, the auto-index won’t know about it unless you tell the insurer and the sum insured is updated. An index can’t capture what was built after your last valuation.

What’s Pushing Building Costs Up

Several factors can make rebuild costs rise faster than they did in earlier years. Not all of them will apply to your property, but they’re worth understanding:

Materials: Prices for steel, timber, concrete, glass and roofing can move quickly, sometimes sharply.
Labour: A shortage of trades, such as plasterers, electricians and carpenters, pushes up rates.
Building standards: Rebuilding to current standards under the National Construction Code can cost more than replicating the original building.
Site conditions: Difficult access, slope, soil issues or limited space for machinery add to the cost of rebuilding.
Demolition and debris removal: These costs are often overlooked but form part of a rebuild.
Professional fees: Architect, engineer and council approval costs are usually included in a proper replacement estimate.

Keep in mind that an insurance valuation is an estimate, not a quote from a builder. Its job is to give a realistic figure for the cover you need, not a precise price for a future job.

Is Your Jump a Real Increase or a Problem With the Number?

A large jump isn’t automatically wrong, but it’s worth checking. Ask yourself a few questions:

Does the new sum insured look close to what a new build of similar size and finish would cost in your area?
Has the figure changed in line with the index, or by a much larger amount?
Did you make renovations that aren’t reflected in the policy?
Is the figure based on the square metres and features your insurer has on file? Check for errors in floor area, number of storeys or construction type.
Does the sum insured include the land, which it shouldn’t?

If the answers suggest something doesn’t add up, it’s worth getting a second opinion before accepting the new figure.

Underinsured or overinsured?

Both problems have costs. If your sum insured is too low, many policies include an underinsurance clause that can reduce your claim payout in proportion to the shortfall. That can leave you covering a large part of a rebuild yourself.

If the figure is too high, you’re paying premiums for cover you won’t use. It’s worth knowing which of these applies to you before your next renewal.

What to Do if the Figure Looks Wrong

Check your policy schedule. Find the building sum insured and note whether the policy says it’s indexed, and by what basis.
Ask your insurer how the figure was calculated. A clear answer should tell you the index used, the starting figure and any property details they relied on.
Correct any details that are wrong. Floor area, construction type, number of storeys and features like pools or garages all affect the estimate.
Tell your insurer about renovations. Keep receipts and plans if you have them.
Get a formal insurance property valuation if the figure still doesn’t match what you expect. This gives you a documented, property-specific rebuild estimate you can use to negotiate or to update the policy.
Compare quotes. Different insurers can use different methods, so it can pay to shop around once you know your correct sum insured.

When a Formal Insurance Property Valuation Is Worth Getting

A formal valuation makes sense when:

The sum insured has moved sharply and you can’t explain why.
You’ve renovated or extended since the last valuation.
Your property has unusual features, construction materials or a heritage status.
You’re buying, selling or refinancing and need an up-to-date figure.
You own a strata unit or a building that’s insured by an owners corporation, where replacement value rules apply.

If you live in a strata scheme, the building cover is usually arranged by the owners corporation rather than individual owners.In New South Wales, the strata insurance requirements generally oblige owners corporations to insure their buildings for the prescribed reinstatement or replacement amount, although exemptions can apply to certain physically detached two-lot schemes. Other states have their own rules, so check with your strata manager or a solicitor if you’re unsure what applies.

Frequently Asked Questions

Why did my home insurance building sum insured go up so much?

Usually because an automatic index was applied to the existing figure, and building costs have risen over the same period. If the jump seems too large, the starting figure may have been wrong, or the index may not reflect your property’s features.

Is an insurance property valuation the same as a council valuation?

No. A council valuation is used for rates and is based on land and improvements in a broader sense. An insurance valuation estimates the cost to rebuild the building only, and excludes land.

Can I ask my insurer to reduce my sum insured?

You can ask for a review, but you’ll need to show that the figure is too high. A formal insurance property valuation is the most reliable way to do that.

Does my insurance cover the cost of rebuilding to current building standards?

It depends on the policy. Some policies include a specific allowance for compliance costs, and others don’t. Check your product disclosure statement or ask your insurer directly.

How often should I review my insurance sum insured?

Many people review it every year at renewal and get a full valuation every few years, or after any major renovation. If your property has changed significantly, review it sooner.

Is a market valuation useful for insurance purposes?

Not for setting the building sum insured. Market value includes land and reflects demand, so it doesn’t measure rebuild cost.

Conclusion

An auto-indexed sum insured is convenient, but it’s only as accurate as the figure it starts from. A big jump can reflect real cost increases, a catch-up after flat years, or a property that the index doesn’t describe well. Check the basis on your policy, correct any errors, and tell your insurer about changes to the property. If the number still doesn’t feel right, a formal valuation will give you a figure you can rely on.

Need Help Checking Your Insurance Figure?

All States Property Valuers provides insurance replacement valuations for homes, strata buildings and commercial property across Australia. If your sum insured doesn’t match what you’d expect it to cost to rebuild, call All States Property Valuers on 0438 080 786 to talk through whether a formal valuation would help.

Insurance Property Valuation: Why Your Sum Insured Jumped This Year

Summary