Australia's most vulnerable households are spending an average of more than seven weeks of their annual income on home insurance premiums due to the impact of extreme weather events.
The gap between the worst-affected Australian households and the rest of the country is also predicted to widen due to climate change, a report by the Actuaries Institute says.
"Climate change will increase home insurance affordability pressure, but the impact will be far greater on vulnerable households - those already facing affordability pressures," paper co-author Sharanjit Paddam said.
"This will make it harder for them to recover from natural disasters or to prepare and pay for measures to reduce their risk."
The green paper released on Thursday shows that an estimated one million Australian homes defined as 'vulnerable' spend more than four weeks of their gross annual income on home insurance.
Those households are most likely to be in north Queensland, the Northern Territory or northern NSW.
For households where the annual home insurance premium is more than $2000, half earn less than $65,000.
"These vulnerable households are more likely to be older, renting, in lower socio-economic areas and have less savings," Mr Paddam said.
The report urged immediate action to address home insurance premium affordability and the socio-economic inequities of climate change.
It suggested an introduction of structural solutions to improve resilience such as levees, floodways and sea walls, as well as better land use and planning to allow for the impact of climate change.
Other proposals included an insurance subsidy for low-income households and managed retreat from risk-prone areas - such as that used in Grantham, west of Brisbane, in 2013.
It also called for greater consultation with Indigenous Australians on more resilient ways of living within the landscape.
"Policy changes will require strong collaboration between multiple parties, including local, state and Commonwealth governments, insurers and banks, builders and developers, and First Nation Australians," Mr Paddam said.
In one example, a less than 2C temperature rise would lead to a 14 per cent increase in home insurance affordability pressure for vulnerable households.
A 3C rise by 2100 would result in a 20 per cent hike in affordability pressure, with a significant increase in the risk of cyclones, bushfires, and floods.
"The Australian Actuaries Home Insurance Affordability Index will give policymakers insights into home insurance affordability for households, the flow-on effects on the economy, and the implications for planning and disaster recovery," Actuaries Institute Chief Executive Elayne Grace said.
"The most effective use of finite government resources will be to assist the most vulnerable households expected to experience the greatest pressures from the changing climate."
