Soaring home insurance bills leave one in eight households struggling

One in eight households is struggling to pay home insurance after price increases of up to 50 per cent over the past year, and there are warnings governments will have to spend more on protecting flood-prone areas to prevent the mass exodus of people from insurance schemes.

Research from the Actuaries Institute released on Monday shows the median home insurance premium surged by more than $400 in the 12 months to March, reaching an all-time high of $1894.

Home insurance premiums have soared by up to 50 per cent over the past year due in part to events such as the 2022 flooding of south-east Queensland.Credit: Getty Images

While the median premium jumped by 28 per cent, in some flood-affected parts of the country – such as south-east Queensland and northern NSW – premiums have surged by 50 per cent, reaching a point where they are unaffordable for most residents.

The institute found 12 per cent of households were forking out more than a month’s worth of their gross annual income on home insurance. It estimates 1.25 million households are facing home insurance affordability stress. Last year, about 1 million households were in affordability stress.

Actuary and report co-author Sharanjit Paddam said the surge in premiums was the largest in more than two decades.

About half the increase was caused by inflation in the building sector, while much of the rest was caused by an increase in natural disasters and higher reinsurance costs caused by climate change.

“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. This usually results in households receiving some support but will not allow them the full economic recovery they would receive if insured.”

Overall insurance costs, as measured through the consumer price index, have climbed by 14.2 per cent over the past year, and there are warnings they will continue to rise.

The federal government has broadened an inquiry into the 2022 floods that caused billions of dollars in damage in Queensland, NSW, Victoria and Tasmania and killed at least 27 people to also include insurance affordability.

Last week, reinsurance giant Swiss Re reported that global insured losses from natural catastrophes rose to $US50 billion ($77 billion) in the first half of 2023. It was the second-highest six-monthly result since 2011.

Thunderstorms across the United States cost $US34 billion in insured losses, while extreme weather conditions in Florida and California forced some insurers to stop offering insurance in those states.

Globally, economic losses from natural disasters reached $US120 billion, 46 per cent above the 10-year average.

Swiss Re found there had been 5-7 per cent annual growth in insured losses, driven by the warming climate and the increase in economic value of urban areas.

Parts of Hawaii were burnt out by wildfire in early August, another natural disaster adding to global insurance price pressures.Credit: The Maui News

A separate report from the Actuaries Institute found government intervention would be needed to tackle growing problems related to flood insurance affordability.

All states and territories bar the ACT impose stamp duties on insurance. The institute said governments could give people immediate cost relief by abandoning taxes on insurance while also considering subsiding some insurance expenses for low-income households or those in very high premium areas.

The Morrison government introduced a cyclone insurance pool, backed by $10 billion in taxpayer support, to help reduce the cost of insurance in parts of northern Australia. The institute said a similar insurance pool aimed at flooding risks around the country should be considered.

It called for an overhaul of building codes and land use rules to help protect communities at risk of climate change-related disasters. That would also include funding for risk-reduction infrastructure.

The report’s lead author, Evelyn Chow, said various initiatives were needed to make insurance more affordable.

“Risk reduction is the only way ultimately to address affordability stress by lowering the underlying risk and therefore costs in a sustainable way, especially when we factor in climate change,” she said.

The federal government overhauled disaster mitigation funding this year, establishing the Disaster Ready Fund that will supply up to $200 million a year to be spent on risk and resilience projects.

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