Australian Homeowners Face Insurance Affordability Challenges Amid Increasing Climate Risks, Report Reveals

Home Insurance Becoming Unaffordable for Many Australian Households

Home insurance is increasingly out of reach for a rising number of Australian families as escalating climate-related risks drive up premiums, putting billions of dollars in mortgage loans at jeopardy, according to a recent report.

As of March 2024, approximately 15% of Australian households were facing home insurance affordability challenges, defined as having premiums exceeding four weeks’ worth of their income, the Actuaries Institute report revealed. This translates to about 1.61 million households, a significant rise from the 1.24 million struggling with similar issues a year earlier—an increase of 30%.

The surge in insurance expenses is contributing to inflation in Australia, with many homeowners finding it increasingly difficult to afford adequate protection for their homes amid climate threats and rising construction costs. Sharanjit Paddam, the lead author of the report, noted, "Unfortunately, we expect this trend to persist due to the escalating risk of natural disasters linked to climate change, which is likely to keep driving premiums higher."

The report also indicated that around 5% of Australian households with home loans are experiencing severe financial strain, with average insurance premiums reaching A$5,216 annually, more than double the average premium of A$2,124.

These households under the most severe affordability pressure collectively hold approximately A$57 billion in outstanding mortgage loans, accounting for 3% of all home loan assets. Paddam warned, "If their homes suffer damage from a natural disaster, and they are either uninsured or underinsured, they could face a challenging financial situation. This issue extends beyond just insurance—it poses concerns for lenders, regulators, and governments as well."

The report highlighted that heightened risks from floods and cyclones affect many regions, with half of the households in southwestern Queensland, the Northern Rivers area of New South Wales, and regional Western Australia facing insurance premiums that consume more than a month’s income.