Home insurance is becoming unaffordable for a growing number of Australian households as increasing climate risks push up their premiums, potentially putting billions of dollars’ worth of mortgage loans at risk, according to a report released on Monday.
In March 2024, 15% of Australian households were struggling to afford their home insurance, defined as insurance that cost more than four weeks’ income in premiums, according to the Actuaries Institute report.
This represents 1.61 million households compared to the 1.24 million households identified as experiencing financial hardship a year ago – an increase of 30%.
Rising insurance costs have fuelled inflation in Australia and there are signs that some homeowners can no longer afford to protect their homes due to climate-related risks and high construction costs.
“Unfortunately, we expect this trend to continue as the overall risk of natural disasters associated with climate change increases and pressure on insurance premiums continues to mount,” said the report’s lead author, Sharanjit Paddam.
The report estimated that five per cent of Australian households with home equity loans were facing extreme pressure, with their insurance premiums averaging A$5,216 (US$3,505) per year, more than double the average of A$2,124.
The households facing the greatest payment stress had mortgage loans of around A$57 billion outstanding in March, equivalent to 3 percent of all home loans, it said.
“If their home is damaged by a natural disaster and they are either uninsured or inadequately insured, they could find themselves in financial distress,” Paddam said.
“So this is potentially a problem that goes beyond the insurance industry. It’s also a problem for lenders, regulators and governments.”
The report estimated that due to the increased risk of floods and cyclones, half of households in south-west Queensland, the Northern Rivers region of New South Wales and the Western Australia region had to pay premiums costing more than a month’s income.
(1 US dollar = 1.4883 Australian dollars)
(Reporting by Stella Qiu; editing by Helen Popper)
Photo: Flooding in Rochester, Victoria, Australia, on January 9, 2024. Photo credit: Getty Images
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