Waiver of Coinsurance Clause Explained for Australians (2025 Update)

In traditional property insurance, coinsurance clauses require policyholders to insure their property for a certain percentage of its value—often 80%, 90%, or 100%. If a policyholder insures for less and then files a claim, they could be penalised and receive a reduced payout. The waiver of coinsurance clause is a provision that eliminates or limits this penalty under specific conditions.

• Standard scenario: Insure for less than the required value, receive a partial payout on claims.

• With waiver: Certain claims—often smaller ones or those meeting set criteria—are paid in full, regardless of the coinsurance requirement.

For example, a small business with a $1 million warehouse insures it for only $700,000. Normally, a partial claim for $100,000 might be reduced due to underinsurance. If their policy has a waiver of coinsurance clause for claims under $250,000, the insurer pays the full $100,000.

The Australian insurance market in 2025 is experiencing a sharp focus on underinsurance, driven by rising property values and increased natural disaster risks. Regulators and insurers are encouraging more accurate property valuations, but many policyholders are still underinsured due to cost concerns or outdated assessments.

The waiver of coinsurance clause has become a hot topic because:

• Climate-related events have increased the frequency of partial loss claims, where coinsurance penalties would bite hardest.

• Rising premiums are pushing businesses to reduce coverage amounts, increasing underinsurance risk.

• Insurers are using waivers as a competitive differentiator, especially for small-to-medium enterprise (SME) policies and strata insurance.

Recent policy updates: Major insurers like QBE and Allianz have revised their commercial property products in 2025 to include conditional coinsurance waivers for claims below set thresholds (typically $500,000 or 10% of sum insured).

Understanding the practical impact of a waiver of coinsurance clause is critical for policyholders:

• Claims under the threshold: Paid in full, even if underinsured, as long as the waiver criteria are met (such as claim size or cause of loss).

• Claims above the threshold: Standard coinsurance rules apply; underinsurance penalties may reduce payouts.

• Premium impact: Policies with waivers may have slightly higher premiums or tighter eligibility, but can protect against costly claim shortfalls.

Real-world example (2025): After severe storms in Queensland, several Brisbane SMEs made claims under $200,000. Those with waiver of coinsurance clauses received full settlements—even when their insured values lagged behind true replacement costs. Others faced 20–30% reductions due to coinsurance penalties.

In 2025, reviewing your policy for this clause is especially important if:

• Your property value has risen sharply and you haven't updated your sum insured.

• You operate in a region with frequent partial-loss events (e.g., storms, bushfires).

• You manage multiple sites or a strata property with variable replacement costs.

Key questions to ask your insurer:

• What is the coinsurance requirement on my policy?

• Is there a waiver of coinsurance clause? What are the limits and conditions?

• How would a typical claim be treated under both scenarios?

Remember: While the waiver offers protection for smaller claims, it’s not a substitute for regular property revaluations and appropriate insurance cover.