If a client’s plant burns down tomorrow and it costs 30% more to replace than their sum insured assumes, that’s not bad luck, that’s a conversation that never happened. Oil prices pushing toward USD 100 per barrel under prolonged Gulf conflict will accelerate an underinsurance problem that’s already well underway across Australian commercial portfolios.
Australia has limited domestic fuel reserves and heavy dependence on imported refined products. When global energy prices move, the cost impact flows through the Australian economy faster and more broadly than most people expect. And when costs rise across the economy, claims costs rise with them.
Claims Inflation Is Already a Problem. This Makes It Worse.
Higher repair and replacement costs for anything with imported parts such as plant, fleet, machinery, commercial equipment have been eroding sums insured for years. Post-COVID supply chain disruption and the Ukraine conflict both pushed up the cost of components and construction. An energy shock layered on top of that doesn’t just add to the problem; it accelerates a compounding one.
Sums insured set three or four years ago, even with standard indexation applied, are likely already inadequate. Once an oil shock is fully priced into the supply chain which takes time, but it happens the gap between insured value and actual replacement cost gets wider again.
The Underinsurance Conversation Is Urgent
The practical broker response here is an annual “inflation stress-test” on sums insured and deductibles. Not just CPI indexation, an actual check against what it would cost to replace or rebuild in the current cost environment, with a forward-looking view on where input costs are heading.
The client conversation is straightforward: “What happens to your claim if the same loss costs 20-30% more to fix in two years’ time? Is your sum insured keeping pace with that?”
Most clients don’t have a good answer to that question because nobody has asked it in those terms. That’s the opportunity.
The Market Cycle Implication
Commercial rates are soft right now but a series of large, inflation-loaded losses across property, fleet, and plant can accelerate a market turn faster than anyone expects. Soft markets end for a reason. If claims costs are rising while premiums are falling, the correction when it comes tends to be sharp.
The brokers who protect their clients through that transition are the ones who’ve been doing the structural work during the soft conditions not just passing on cheaper renewals and hoping the good times continue.
That kind of thinking doesn’t come from a compliance checklist, it comes from experience, mentorship, and being part of a network that takes the craft of broking seriously. That’s the Better Broker Network difference.