Modern houses are easy to replace but house designs from decades ago are unlikely to be used. What can be done?
While not addressing this directly, State set out the boundaries for their clients. It is likely the boundaries will be similar with other insurance companies. The following is from the FAQ section headed Questions about your repair/rebuild.
"Your policy contract with us covers you to reinstate your home, like for like, with today’s building materials and obviously we would not replace materials that are prohibited today such as asbestos. Where there is no material impact in terms of cost and code compliance, we will work with you to accommodate changes you would like to make.
Please note, however, that any extra costs associated with these changes will be your responsibility e.g. design, architecture and engineering costs etc."