Home Insurance Premiums Jump by 50% in High-Risk Parts of Australia

According to a new analysis, home insurance premiums in high-risk areas of Australia have increased by 50% as global warming increases the frequency and expense of climate disasters.

According to the Actuaries Institute’s research on home insurance affordability and funding for flood expenses, which was issued on Monday, median home insurance premiums increased by 28% in the year to March, totaling $1,894 across all states.

Home insurance premiums for high-risk properties, especially those in flood-prone locations, increased by 50%.

It’s the greatest increase in two decades, stoking fears among industry leaders that households would drop insurance completely owing to rising costs.

Almost one in every eight Australian households (1.24 million) is now classified as “affordability stressed,” which means they spend more than four weeks of their yearly income on home insurance.

Sharanjit Paddam, a research co-author, stated that those households spent almost $4,000 per year on insurance, which was more than double the national average.

The stressed households were also often poor socioeconomic, lived in rural areas, and could not pay hefty premiums.

The study comes on the heels of the institute’s Green Paper, which warned that insurance premiums would rise as a result of climate change, putting an extra burden on already vulnerable households.

Monday’s report suggests the grim predictions are coming to fruition.

The authors of the report and the Actuaries Institute have called for a slew of urgent legislative suggestions to alleviate the burden on communities facing floods, cyclones, and bushfires in the midst of a cost-of-living crisis.

They included risk-reduction initiatives, insurance-based tax reform, targeted subsidies, and cost-sharing mechanisms such as a flood insurance pool.

Paddam attributed the two-decade high to rising construction costs, supply chain bottlenecks, and the growing frequency 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 study discovered that the households severely damaged were in New South Wales’ northern rivers region, which was devastated by several floods last year.

North Queensland and Western Australia followed, due to high cyclone risk.

More than half of the cost of home insurance premiums for the 171,000 homes assessed to be under the most severe stress was related to riverine flood risk.

The researchers predicted that the entire flood premium for these families, if fully insured, would be $1.5 billion per year, or $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.

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