A rise in natural disasters associated with the world’s ongoing climate crisis has seen sky-high insurance premiums price out millions of homeowners, say financial experts.
A new Home Insurance Affordability and Home Loans at Risk Report has revealed that insurance bills have plunged 1.6 million households into financial stress in 2024, with those in cyclone and flood-prone areas in particular facing significant spikes in cost.
This figure is a whopping 30 per cent increase over the past year, and the institute has forecast that it will only worsen as the frequency and intensity of natural disasters grow.
Sharanjit Paddam, the lead author of the report, expressed concern over the growing number of households going into the red to pay off their bills.
“While insurance remains generally affordable for 85 per cent of households, it’s concerning that 1.6 million households are now struggling to afford to insure their homes, up from 1.24 million a year ago,” Paddam stated.
Southeast Queensland, a region that has experienced significant population growth in recent years, has the highest number of households under extreme affordability pressure.
However, other regions, including southwest Queensland, NSW’s Northern Rivers, regional Western Australia, and the Northern Territory, have the largest proportion of households facing severe insurance affordability stress.
In these areas, a staggering half of the population say they are facing home insurance premiums that exceed a month’s income, thanks to catastrophic climate disasters in the past.
The increase in affordability-stressed households has also raised concerns about potential ripple effects in Australia’s $2.3 trillion home loan market, with the report estimating that 5 per cent of Australian households with a mortgage are experiencing home insurance affordability stress.
For these households, the average home insurance premium is $5,216 per year, more than double the national average of $2,124.
“This situation affects not just the households but also lenders, regulators, and governments,” added Paddam.
He noted that 180,000 households under home insurance affordability stress collectively hold about $57 billion worth of home loans.
If these homes are damaged by natural disasters and the owners are either uninsured or underinsured, Paddam warned these Aussies could face severe financial difficulties, creating a broader problem for the financial system.
In response to the growing crisis, the Actuaries Institute is urging collaboration between governments, insurers, lenders, and investors to develop sustainable finance solutions such as resilience loans and bonds.
According to the group, these measures are seen as essential in helping households manage the escalating risks associated with climate change.
Elayne Grace, CEO of the Actuaries Institute, emphasised the need for a collective approach to address the risks posed by a changing climate.
“Sustainable finance should be part of the solution,” Grace said.
“It creates a path forward for households, investors, insurers, and lenders, and allows the government to focus on those in most need and on community-level measures.”
