Soaring Australian Home Insurance Premiums Strain Households amid Climate Crisis
Home insurance premiums in Australia have skyrocketed to the highest levels in two decades, placing an immense burden on households already grappling with inflation, borrowing costs, and rising rents. According to a report released by the Actuaries Institute, median home insurance premiums surged by a staggering 28 percent to AUD 1,894 (USD 1,230) in the year ending March 31. The increase was mainly driven by severe weather events and higher building costs.
Properties located in flood or fire-prone areas, which are deemed high-risk by insurers, experienced an even more dramatic spike in premiums. These properties saw their insurance costs surge by a whopping 50 percent. Consequently, the number of households classified as affordability stressed, where more than one month’s gross annual income is spent on home insurance, rose from 1 million to 1.24 million households in just one year. The overall proportion of these households rose from 10 percent to 12 percent.
Researchers discovered that affected households, on average, spent 8.8 weeks’ worth of income on home insurance, a significant strain on their finances. Furthermore, this surge in premiums comes at a time when Australian households are already facing economic challenges, including rising inflation, borrowing costs, and rents.
Sharanjit Paddam, one of the authors of the report, attributed half of the increase in home insurance premiums to building cost inflation influenced by supply chain shortages over the past two years. Paddam also highlighted the impact of climate change, stating that increased natural disasters and higher reinsurance costs are contributing factors.
The hardest-hit households are concentrated in flood-prone regions such as the Northern Rivers in New South Wales, alongside north Queensland and Western Australia, where the risk of cyclones is high. Climate change is causing extreme weather events to occur more frequently around the world, with climate scientists warning that disasters previously considered one-in-a-hundred-year events will become more common unless significant reductions in carbon emissions are achieved.
In response to the intensifying climate crisis, Australian Prime Minister Anthony Albanese recently announced that the country will join German Chancellor Olaf Scholz’s climate club. This move aims to bolster international cooperation in combating global warming, particularly in light of record-breaking temperatures.
The authors of the report predict that home insurance affordability pressures will worsen due to climate change, and households without insurance will face significant challenges in recovering from disasters. This scenario could result in increased reliance on government assistance, taxpayers, charities, and other informal means of support.
As Australia grapples with the consequences of climate change on the country’s insurance landscape, it is evident that urgent action is needed to address the rising costs and ensure the resilience of households in the face of these challenges.
