It was 2:30am when the floodwaters seeped through the back door and into John and Dorothy McFadden's North Lismore home. Dorothy, who can't swim, saw the water first.
"She said, 'Look, John, the water's coming in the back door' … Within an hour, it was up around our waists, it just come that quick," John says.
For six hours the pair stood in the murky water, not knowing if, or when, help would arrive. When it finally came, it was a stranger in a tinnie who had heard their cries.
"We were standing at the front door up to our chests in water, waiting to be rescued," John recalls.
"I could have swum but … [Dorothy] was actually frozen. Her legs were stiff. She couldn't move."
Sitting in a skeleton of the place they have called home for 48 years, John and Dot are still paying nearly $300 a month, or roughly $3,500 a year, for their home and contents insurance.
The couple knew their insurance wouldn't cover the cost of rebuilding. But they have since learned that it also won't cover the home's contents because they did not have flood cover.
The McFaddens enquired about flood cover in 2018 but it was simply out of reach.
"They [NRMA Insurance] quoted us a figure of $25,000. That was for flood cover. There is no way in the world, as pensioners, that we could afford that," John, a retired health worker, says.
With "possibly $20,000 in the bank" between them, the couple have no idea how they will afford the ongoing payments while trying to rebuild.
"Insurance will definitely go up, there are no two ways about it," John says.
"How much more stuff can you cut … to be able to pay those kinds of insurance premiums?"
The McFaddens now find themselves in a predicament confronting a growing number of Australians.
Skip ahead to see how escalating climate risk could affect premiums in your area
One in 10 pushed to the brink
One million households in Australia already face "extreme" levels of insurance stress and will bear the brunt of future premium hikes driven by climate change, new research has warned.
The report, prepared by analytics firm Finity Consulting and commissioned by the Actuaries Institute, examines the cost and affordability of home insurance this year and in 2050, in both a high-emissions and low-emissions future.
Previous estimates have found that by 2030, more than half a million homes would be "uninsurable" because of spiralling premiums.
This latest research is even more dire.
Vulnerable households – defined in the report as the one in ten households spending the largest share of income on insurance – currently pay an average of 7.4 weeks' pre-tax income on their premiums.
This compares to an average of one week of income paid by the rest of the population.
"That it is already as much as 10 per cent of households, or 1 million households, that was surprising. I didn't think it was that bad," says Sharanjit Paddam, the report's lead author.
Previous research into household insurance risks did not include income in their calculations, and may not accurately reflect what is affordable for different households.
This report defines "extreme affordability pressure" as more than four weeks' pre-tax income – a threshold that aligns with other research on financial stress and vulnerable populations.
"This is not just a problem about the cost of insurance; it's also a problem of people's ability to pay," says Mr Paddam, an actuary with Finity's climate and ESG practice.
"So, if [other reports] are talking about 500,000 [uninsurable homes] by 2030, then we think that we're already there."
Every neighbourhood has vulnerable residents
While vulnerable households are concentrated in northern Queensland, the Northern Territory and northern New South Wales, the report emphasises that vulnerable households exist in every council area in Australia.
Some of the most vulnerable populations are in metropolitan or inner-city locations.
In the City of Melbourne, for example, one in five households is under extreme affordability pressure, while in the City of Adelaide, it's one in 11.
In both these local government areas (LGAs), the annual insurance premium already costs some residents, including retirees, more than 20 weeks' income, a nominal figure indicating they effectively have no income.
In the City of Sydney, where one in seven households is vulnerable, the median household in this group spends an average of 5.8 weeks' income on the annual premium.
This chart shows the affordability divide between vulnerable and other households, this year and in 2050.
Climate change will dramatically widen the gap between those who can and can't afford to pay, the report finds.
Under a high-emissions scenario, where global temperatures increase by 3 degrees by 2100, affordability will worsen by one-and-a-half weeks (10.7 days) for vulnerable households, compared to 0.4 days for other households.
Under a low-emissions scenario, where global temperatures rise by less than 2 degrees, insurance affordability will worsen by more than one week (7.6 days) for vulnerable households, compared to 0.2 days for other households.
"People on low incomes are impacted first, worst and longest by extreme weather events … because they don't have the same financial means to cope, adapt, and recover," says Kellie Caught, Australian Council of Social Service (ACOSS) climate and energy program director.
On top of that, low-cost housing, including rental properties, tends to be in higher-risk areas, like flood or bushfire zones, and built to poorer standards.
This overlap between climate risk and socioeconomic disadvantage means the most vulnerable people are likely to live in the least resilient housing and in the riskiest areas. "Because that's what they can afford," Ms Caught says.
Half of households paying premiums of more than $2,000 earn less than $65,000, according to the report.
"Retirees, individuals over 60, and single adult households are very much in the vulnerable group," Mr Paddam says.
They are also more likely to be single parents or living alone, women, renting, and to have low insurance literacy and low savings.
"The reality is that the people who are most impacted by natural disasters are often low socioeconomic status … and don't have the capability to move or to pay to improve their homes," says Actuaries Institute chief executive Elayne Grace.
And when catastrophe strikes, the financial and emotional toll can be unbearable, Ms Caught says.
It's not just the task of rebuilding an uninsured home. Families are usually hit with pricier food, rent and other essentials as the area struggles to recover, while moving elsewhere often means leaving jobs, schools and support networks, she says.
"So you just have these compounding factors that have a significant impact on your ability to keep your head above the water …. I mean, there's a breaking point, right?"
Insurance stress hotspots
When Kaz O'Reilly, who lives west of Cairns, received her home insurance renewal notice last year, she was stunned to find the annual premium had doubled to roughly $4,000. But shopping around for a new insurer proved surprisingly difficult.
"Most of the quotes were even higher. One insurance company wanted to charge $14,000," she says.
She eventually found insurance for just over $2,871 a year. The next-cheapest quote was $4,425. Ms O'Reilly says her neighbours have faced similar hikes in their premiums, with some even being refused cover.
Ms O'Reilly lives in Speewah, set in the tablelands in far north Queensland's Mareeba Shire, one of the 10 LGAs facing the biggest hits to insurance affordability as climate risks escalate, according to the research. The region is already ranked 17th among 533 council areas for Australia's least affordable home insurance.
The Actuaries Institute report calculates insurance affordability in every LGA in Australia by combining data on the premium for every residential property with census data on pre-tax household income. (Premiums are as of March 2022, while household income estimates are based on the 2011 census and adjusted for inflation.)
It then estimates how increased risk from the natural hazards usually covered by insurance (bushfire, cyclone, flood and storm) will affect the price of home insurance in 2050 in a high-emissions and low-emissions future.
These figures, supplied exclusively to the ABC, reveal Australia's insurance stress hotspots.
Today in Australia, the annual home insurance premium costs the median household just over one week of its pre-tax income.
“Median” means that half of households pay more and half pay less.
You can think of this as a measure of insurance stress: the higher the number, the higher the stress.
This is how the median varies for each of Australia’s 533 local government areas.
To the far right of the chart, Aurukun, in far north Queensland, has Australia’s highest levels of insurance stress. The median household here spends more than 6.5 weeks’ income on insurance.
That’s 25 times as much as Roxby Downs in South Australia’s central corridor.
Here, half of households spend less than two days’ income on insurance.
Here’s what it looks like with a dollar amount on those premiums, based on the average (mean) in each area.
The average home insurance premium in Australia costs $1,534 a year.
But that average rises as high as $4,794, or three times the national average, in WA’s Upper Gascoyne. This is Australia’s most expensive area to insure.
At the opposite end of the scale, Australia's cheapest area to insure is northern SA’s Cooper Pedy.
Here, the average premium costs $737, or half the national average.
But as global warming causes extreme weather events to become more frequent and more severe, this picture quickly worsens.
Here’s how home insurance premiums are expected to change in the year 2050 in a low emissions scenario where global temperatures rise by less than 2 degrees celsius.
For most areas, insurance stress and premiums have both shot up. Areas already struggling with high insurance stress (to the right of the chart) are hit hardest.
But this scenario may be too optimistic, since global warming is currently on track to exceed 2 degrees.
This is how insurance affordability is expected to change under a high emissions scenario, where global temperatures rise by roughly 3 degrees celsius by 2100.
The number of councils under extreme pressure is projected to double from 12 to 23.
The largest councils in this group are Hinchinbrook, Mareeba, Cairns, Douglas and Tablelands, all in far north Queensland.
Each is home to at least 5,000 households, with Cairns, the largest, encompassing more than 69,300 households.
In a high emissions scenario, half of households in these neighbourhoods will spend more than one month’s income on their premiums, according to the research.
Here are the councils colour-coded by state/territory. Some states are far less exposed to climate threats than others.
The safest parts of the country are in South Australia, Tasmania and Victoria, where most households will spend less than 1.8 weeks’ income on insurance, even in a high emissions scenario.
The situation is significantly worse in NSW.
The worst-affected areas are in northern NSW, where the combination of low incomes and high flood risk leads to big increases in insurance stress.
Under a high emissions scenario, the cost of insurance in one in four councils will rise to more than 2 weeks’ income for the median household.
Annual premiums are expected to jump by more than $900 in the northern NSW councils of Ballina, Clarence Valley, and Coonamble ...
... while insurance stress worsens by up to a week in Coonamble and Warren, in northern NSW, and Berrigan, on the Victorian border.
In this scenario, half of households in these areas will spend more than 2.5 weeks’ income on their premiums.
In the Northern Territory, affordability worsens most for East Arnhem and West Daly, both in the Top End, where cyclone poses the biggest climate threat.
In a high emissions scenario, half of households in East Arnhem and West Daly can expect their annual premium to cost more than 4.2 weeks’ and 3.3 weeks’ income, respectively.
Cyclone risk in northern Queensland and northern WA, and flood risk in inland Queensland means these regions already pay the most for insurance.
In a high emissions scenario, average premiums are expected to surge past $4,500 a year.
In Queensland, 21 of the state’s 76 councils, half of households can expect to spend between one and two months’ income on their insurance premiums.
The worst affected areas are the Aboriginal shire councils of Aurukun, Yarrabah and Wujal Wujal in northern Queensland.
In these areas, high cyclone risk overlaps with social and economic disadvantage to create especially vulnerable populations.
Where premiums will rise fastest
The Insurance Council of Australia (ICA), which represents Australia's general insurance industry, has repeatedly maintained that no part of Australia is currently uninsurable.
But in an interview with the ABC, ICA chief executive Andrew Hall said this was "a very technical response".
"We can write an insurance policy for anywhere … But the question is: is it affordable for the people who live there and, particularly, with the sorts of homes and the perils they've got?" he says.
"No area is uninsurable but there are areas that are definitely unaffordable and also unprofitable to offer insurance in."
Climate change is expected to cause premiums to rise fastest in northern Australia and along the east coast, according to the Actuaries Institute report.
On the other hand, a high-emissions scenario is projected to see premiums fall marginally (at least, theoretically) in 26 councils where the reduced frequency of extreme weather events will outweigh their increased severity.
More than 60 council areas will see their premiums increase by at least $500 a year, including 22 where premiums are projected to leap by more than $1,000 a year, the report warns.
Topping this list is Cairns LGA, where a high-emissions scenario is projected to see the cost of insurance rise by $2,088 to $5,819 a year, on average.
Marcus Plasmeyer, who owns a three-bedroom unit at Palm Cove, in Cairns LGA, says his premium has risen by nearly $1,000 over the past three years, to $2,780.
"Last time, I got about four or five quotes – this was only a couple months ago – and I was really shocked at how much more expensive they were. The next best quote I could get was an extra $400. One was $8,000-and-something and one was $5,000-and-something," he told the ABC.
"I can't believe how much it's jumped up … And not only that, lots of companies don't insure up here now."
Like Ms O'Reilly in Speewah, Mr Pasmeyer says he was prepared to drop the weather-related parts of his insurance cover if his premium continued to rise at the same rate.
"It's going to get too expensive. And for us, we pass it on to our tenants; we're not a charity," he says.
But the Insurance Council's Mr Hall warns that non-insurance has a "cascading effect" that "creates intergenerational poverty".
"Nearly a third of Lismore residents didn't have insurance … They're trapped in a cycle where they'll keep going backwards," he says, referring to the catastrophic floods in February-March this year, which ravaged John and Dorothy's home.
Search the database below to see how insurance affordability is expected to change in your area.
Cyclone costs in Australia are heavily concentrated along the coast of northern Australia, in QLD, WA and NT.
Climate change is shifting cyclone risk, according to the report. This affects the southern coast of WA as well as southern Queensland and northern NSW.
Australia's flood costs are concentrated in inland Queensland and NSW, where townships have been built on and around extensive inland riverine systems.
Extreme rainfall events are expected to become more frequent. This is more likely to increase the costs faced by communities already exposed to flood risk, rather than expose more communities to risk because flooding is dependent on existing riverine systems.
Bushfire costs in Australia are concentrated in the east coast of NSW, central regional Victoria, Tasmania, and the south of Western Australia.
In future, lower average rainfall and higher temperatures will increase the number of days of extreme fire weather danger.
Storms are the main natural hazard threatening Australia's densely populated metropolitan areas. Storm costs in Australia are driven by hailstorms and low-pressure systems, and are concentrated along the east coast, especially greater Sydney, Gold Coast and Brisbane.
The changing climate is expected to lead to lower rainfall across many parts of Australia, especially metropolitan areas where storm losses are concentrated.
'Hard decisions need to be made'
Policies targeting vulnerable households, which face the greatest insurance stress, will give the biggest bang for buck, according to the research.
Among the report's recommendations is replacing state-based stamp duty and levies, which add 10–30 per cent to the premium, with "alternative revenue sources that are more equitable and efficient".
This alone would reduce the average cost of insurance for vulnerable households from 7.4 weeks to 6.6 weeks, the report finds.
"This is something we can do today that would actually make a lot of difference," Mr Paddam says, pointing out that other analyses, including the Thodey tax review and Henry Tax Review, have also criticised these levies.
Under the current system, those who are most at risk and already paying the highest premiums, also pay the most tax.
"We have these vulnerable people who have lower incomes and higher risk because those are the houses they can afford, and they're being charged extra on top of that for these taxes," Mr Paddam says.
"Yet they're doing the right thing; they're trying to protect themselves and their families."
The report's other recommendations include:
- Investing in infrastructure projects to improve disaster resilience and adaptation of individual homes
- Direct subsidies for insurance and/or resilience measures for vulnerable households
- Better building standards, improved land use and planning, and avoiding development in high-risk areas such as flood zones
- Relocating people and buildings if mitigation and adaptation is not an option
- Better information on the impacts of climate change, including a public database with insurance affordability, exposure and vulnerability data
- Consulting closely with First Nations Australians on nature-based solutions to adaptation and mitigation.
Back in North Lismore, John says he and his wife are surviving, but it's hard.
"The thing you're buoyed by is just that community support and having that love around you," John says.
"The people that have come out of the woodwork, total strangers knocking on the door every day after the flood, bringing food, hot meals, sandwiches … [asking] 'You need a fridge? Do you need a washing machine? You need a microwave? Tell me what you need'."
What Australia needs is leadership, according to the Actuaries Institute's Ms Grace. At the end of the day, someone has to pay – whether that's the individual, insurer or taxpayer – so ultimately, we are all in the same boat.
"This is urgent. We cannot keep delaying … This issue is causing a lot of devastation and pain and it isn't going away. Hard decisions need to be made," she says.
"The question is, who is going to have the leadership to make those hard decisions?"
Credits
Reporting: Inga Ting
Development: Katia Shatoba and Thomas Brettell
Design: Alex Palmer
Additional research and reporting: Bronwyn Herbert, Michael Workman and Stephen Hutcheon
