Insurance is getting more expensive amid warnings that some Australian homes will be uninsurable in less than a decade.

The effects of climate change are widening the gap in home insurance affordability, presenting huge risks for homeowners living in parts of the country deemed “uninsurable”. 

One million Australian households spend more than four weeks of their gross annual income on home insurance, according to research. These homes are more likely to be in northern Queensland, Northern Territory and northern NSW, while the rest tend to be in capital cities.

The research reveals significant inequality in the cost of buying insurance. If you bought a home that’s now in a flood-prone part of the country, you’re likely to be forking out an average of 7.4 weeks of gross annual salary income on home insurance, compared to the national average of 1.1 weeks. 

The average home insurance premium in Australia is $1534, while those living in parts of Northern Queensland and Northern WA are paying double that, with annual home insurance premiums averaging more than $3000. 

There are concerns that the inequality in cost is impacting lower-income earners, too. Half of the households forking out more than $2000, earn less than $65,000 a year. 

“Climate change will increase home insurance affordability pressure, but the impact will be far greater on vulnerable households—those already facing affordability pressures,” insurance actuary and report co-author Sharanjit Paddam says. 

These vulnerable households are more likely to be older, renting, in lower socio-economic areas and have less in savings, making it harder for them to recover from natural disasters or to prepare and pay for measures to reduce their risk, he says.  

The Actuaries Institute green paper calls on policymakers to address home insurance premium affordability and the socioeconomic inequalities of climate change. 

“In areas where mitigation and adoption systems cannot adequately manage the losses suffered from persistent severe weather events, communities may need to consider relocating some or all of its people and assets, especially in cases where home insurance premiums are unaffordable,” the paper says.

Covering the Rising Cost

Official figures show that the number of insurance policies held in Australia remain steady, with extreme weather events no doubt making many reluctant to cancel their insurance policy. 

But paying for insurance is proving tough amid the cost of living crisis, forcing some families to make the heart-wrenching decision to keep their insurance policy, or put food on the table. 

The analysis follows the nation’s second costliest weather event in Australia’s history. The February-March floods that hit South-East Queensland and parts of NSW by late July this year topped $5.1 billion in losses, Insurance Council of Australia figures show. 

The average claim for the event is $22,000, with personal claims averaging $17,000. 

The devastating floods surpassed 1974’s Cyclone Tracy in cost and was only slightly behind the 1999 Sydney Hailstorm, which caused insured losses of $5.57 billion. 

Meanwhile, new data from the CSIRO’s once-in-a-decade megatrends report reveals that the cost of natural disasters is expected to triple over the next 30 years as climate change worsens. 

Uninsurable Homes Listed

At present there are no areas of Australia that are uninsurable, however, a second report by the Climate Council highlights dire predictions that one in 25 homes in Australia will be completely uninsurable by 2030 due to climate change.

It has analysed 14 million addresses across the nation to create a map showing the risk of extreme weather. 

The majority of the uninsurable properties are in parts of Queensland, but also in pockets of Victoria, South Australia and Victoria. Homeowners can add their address into the Climate Risk Map here. 

Renowned climate councillor and leading economist Nicki Hutley has dubbed the report “deeply concerning”, warning that Australia is paying a high and terrifying price for climate inaction and time wasting. 

“It’s clear that Australia is fast becoming an uninsurable nation. Skyrocketing costs or flat out insurance ineligibility are becoming more and more widespread under climate change.”

Extreme weather events aside, general insurers provide Australians with 43 million business and household policies a year and fork out more than $166 million in claims every working day, according to the Insurance Council of Australia. 

The Cost of Claims

The growing costs highlight the issues facing the nation’s insurance sector. Insurers continue to employ more people and contractors to resolve claims, however the nation’s ongoing talent shortage is creating major headaches. 

The Insurance Council of Australia argues that insurance globally is currently in a “hard” market, which means capital is scarce, reinsurance is more difficult to obtain, and risk appetites are low, which can impact the cost of premiums. 

Different types of insurance will be priced differently, it warns. “As the risk of extreme weather worsens, insurance can become increasingly costly for those in flood, bushfire-prone or cyclone-prone locations.”

Meanwhile, the Productivity Commission found that 97% of natural disaster funding is spent after an event, with just 3% spent on measures to improve community resilience ahead of an event. 

The insurance sector is pushing for the government to implement flood mitigation measures to reduce the impact to communities during extreme weather events. The sector is also grappling with a barrage of other rising costs, including regulatory and compliance costs and the need for technology upgrades, according to KPMG.