Home insurance premiums have climbed by 50% in high-risk parts of Australia as global heating increases the frequency and cost of climate disasters, a new report has found.
The Actuaries Institute’s research on home insurance affordability and funding for flood costs, released on Monday, found median home insurance premiums rose by 28% in the year to March, sitting at an average of $1,894 across all states.
For high-risk properties, including those in flood-prone areas, home insurance premiums were up by 50%.
It’s the biggest rise in two decades, raising concerns among peak bodies that households may abandon insurance altogether due to increasingly prohibitive costs.
Nearly one in eight Australian households (1.24m) are now considered “affordability stressed”, meaning they spend more than four weeks of their annual income on home insurance.
A co-author of the report, Sharanjit Paddam, said those households spent about $4,000 annually on insurance, more than twice the average amount.
The stressed households were also typically in a low socioeconomic bracket, living in regional areas and less able to afford high premiums.
The research follows a Green Paper released by the institute last August which warned insurance premiums would increase with climate change, having a disproportionate impact on already vulnerable households.
Monday’s report suggests the grim predictions are coming to fruition.
The paper’s authors and the Actuaries Institute have called for a string of urgent policy recommendations to ease the burden on communities facing threats from floods, cyclones and bushfires amid the cost-of-living crisis.
They included risk reduction measures, reform of insurance-based taxes, targeted subsidies and cost-share measures such as an insurance pool for floods.
Paddam said the two-decade high could be attributed to building cost inflation, supply chain shortages and the increasing occurrence and severity of natural disasters.
“Based on science, we expect these home insurance affordability pressures are likely to continue to worsen due to climate change,” he said.
“If we don’t take policy action now, we can expect to have more people abandoning home insurance.
“Without insurance, households will struggle to recover from disasters and governments, taxpayers, charities and many informal means of support will be left to assist.”
The research found the households hit hardest were in the northern rivers region of New South Wales, which grappled with several floods last year.
North Queensland and Western Australia followed, due to high cyclone risk.
Of the 171,000 households considered under the most severe stress, more than half the cost of home insurance premiums was due to riverine flood risk.
The researchers estimated the total flood premium for these households, if fully insured, was $1.5bn a year, or an average of $8,800 per household.
“At the moment, $1.5bn is the size of the problem,” Paddam said. “That is our estimate of flood insurance that could already be considered unaffordable.”
The chief executive of the Actuaries Institute, Elayne Grace, said flood insurance affordability pressures were acute and the problem needed to be addressed urgently.
“We need to tackle this problem holistically, with a well-designed suite of policy measures to achieve long-term benefits for all Australians,” she said.
The assistant treasurer and minister for financial services, Stephen Jones, welcomed the report and said the federal government had “work under way on a number of these areas”.
“Our focus is on reducing the underlying risk that is driving insurance premium increases,” he said, citing the revamped Disaster Ready Fund which will offer up to $200m over five years to invest in disaster prevention and mitigation projects.
A parliamentary inquiry is also under way into insurers’ response to the 2022 floods.
