Home insurance surges by up to 50 per cent

One item is becoming increasingly unaffordable for Australians, and with prices expected to climb even higher, they may abandon it altogether.

Insurance premiums have surged by up to 50 per cent in the past 12 months, with households increasingly unable to afford coverage, a new report has revealed.

As soaring inflation and high interest rates batter households, the report released by the Actuaries Institute on Monday found that the median home insurance premium had risen to $1894 a year.

Soaring building costs, increasingly severe weather events including cyclones and flooding, and a rise in reinsurance premiums passed through to consumers contributed to median home insurance premiums jumping 28 per cent in the year to March 2023.

For the highest-risk properties, such as those in flood-prone areas, home insurance premiums increased even more, up 50 per cent.

Twelve per cent of households were now considered “affordability stressed”, where the cost of taking out home insurance was more than a month’s household gross income, the report stated.

A new report warns that 1.24 million Australian households are now considered ‘affordability stressed’. Picture: NCA NewsWire/Danielle Smith

The cost hike is the largest increase in home insurance premiums in the last 20 years and has raised fears within the industry that households may abandon purchasing home insurance altogether.

While the price of premiums have increased significantly, real household incomes have also been eroded as a result of high inflation, meaning that home insurance is becoming prohibitively expensive for many households.

“Overall, we estimate that 1.24 million Australian households face home insurance affordability stress compared to one million a year ago … This population is at risk of being either uninsured or underinsured,” the report stated.

Actuary Sharanjit Paddam, who co-authored the Actuaries Institute report, warned that the insurance sector expected the cost of insurance premiums would continue to rise.

Home insurance premiums have jumped by 50 per cent in some locations. Picture: Facebook via NCA NewsWire

“Based on science, we expect these home insurance affordability pressures are likely to continue to worsen due to climate change,” Mr Paddam said.

“If we don’t take policy action now, we can expect to have more people abandoning home insurance.

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

The report also identified the Northern Rivers region of NSW, which experienced severe flooding in early 2022, as the area most exposed to affordability pressures.

Affordability pressures were also acute in North Queensland and Western Australia due to the higher likelihood of cyclones.

Of the 171,000 households across Australia experiencing extreme affordability pressure, flood risk makes up half the cost of premiums.

A suite of short and long-term reforms are needed to bring down the cost of home insurance, the Actuaries Institute says. Picture: NCA NewsWire/Danielle Smith

Researchers found that to close the insurance gap and fully insure these households would cost $1.5bn annually or $8800 per household.

The Actuaries Institute report also recommends a suite of measures designed to alleviate the affordability pressures as cost of living pressures continue to bite.

These include introducing measures to alleviate the impact of natural disasters, reform of insurance-based taxes, targeted subsidies to areas experiencing affordability pressures, and the establishment of cost-sharing measures to bring down the cost of premiums.

In July, the Albanese government launched a parliamentary inquiry into insurers’ response to the 2022 floods.

As of June 2023, the Insurance Council estimates the February‑March 2022 floods in South East Queensland and northern NSW had caused nearly $6bn in insured damages.

Originally published as Home insurance surges by up to 50 per cent