Unaffordable Home Insurance Threatens Australian Households Amid Climate Risks
As the threat of climate change drives up premiums, home insurance is becoming increasingly unaffordable for Australian households, potentially putting billions of dollars in mortgage loans at risk, according to a report by the Actuaries Institute.
By March 2024, 15% of Australian households were facing home insurance affordability stress, with premiums exceeding four weeks' worth of their incomes. This represents 1.61 million households, a 30% increase from the previous year.
The rising insurance costs have contributed to inflation in Australia, with some homeowners struggling to afford protection against climate-related risks and high construction costs.
Lead author of the report, Sharanjit Paddam, warned that the trend is expected to continue due to the escalating risk of natural disasters associated with climate change, leading to higher premiums.
The report revealed that 5% of Australian households with home loans are under extreme pressure, paying an average of A$5,216 ($3,505) in insurance premiums annually, more than double the national average.
Households experiencing extreme affordability stress have a collective A$57 billion in outstanding mortgage loans, posing a significant financial risk if their homes are damaged by natural disasters without adequate insurance coverage.
The report also highlighted that half of households in specific regions, such as southwestern Queensland, the Northern Rivers region of New South Wales, and regional Western Australia, are facing premiums that exceed one month's income due to heightened flood and cyclone risks.
This issue extends beyond insurance, impacting lenders, regulators, and governments, as the financial stability of affected households could have wider implications on the economy.
Overall, the increasing cost of home insurance due to climate risks poses a significant threat to Australian households, with potential consequences for their financial well-being and the stability of the housing market.