Rising Home Insurance Costs in Australia

SYDNEY (Reuters) – Home insurance is becoming unaffordable for a growing number of Australian households as increased climate threats drive up their premiums, potentially putting billions of dollars in mortgage loans at risk, a report said on Monday.

As of March 2024, 15% of Australian households were experiencing home insurance affordability stress, defined as having premiums that cost more than four weeks’ of their income, according to a report from the Actuaries Institute.

This is equivalent to 1.61 million households, compared to 1.24 million facing affordability stress a year ago—a 30% increase.

Rising insurance costs have fueled inflation in Australia, and some homeowners can no longer afford to protect their homes due to climate-related risks and high construction costs.
“Unfortunately, we expect this will continue because of the overall increasing risk of natural disasters associated with climate change, which will continue to put upward pressure on premiums,” said the report’s lead author Sharanjit Paddam.

The report estimated that 5% of Australian households with home loans are experiencing extreme pressures, with their insurance premiums averaging A$5,216 ($3,505) a year, more than double the average of A$2,124.

Households facing the most extreme affordability stress have about A$57 billion in outstanding mortgage loans as of March, representing 3% of all home loan assets.

“If their home is damaged by a natural disaster and they either don’t have insurance or are underinsured, they could find themselves in a stressful financial situation,” Paddam said.
“So, this is potentially a problem that’s bigger than just insurance. It’s also a problem for lenders, regulators, and governments.”

The report estimated that due to heightened risks of floods and cyclones, half of households in southwestern Queensland, the Northern Rivers region of New South Wales, and regional Western Australia faced premiums that cost more than one month’s income.

($1 = 1.4883 Australian dollars)