Australian homeowners struggle to afford insurance as climate risks rise, Reuters report

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

In March 2024, 15% of Australian households were experiencing home insurance affordability stress, which is defined as having premiums costing more than four weeks of their income, the Institute of Actuaries report found.

This equates 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 there are signs that some homeowners can no longer afford to insure their homes due to climate risks and high building costs.

“Unfortunately, we expect this to continue due to 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 5 per cent of Australian households with home loans were under extreme pressure, with insurance premiums averaging A$5,216 ($3,505) a year, more than double the average of $2,124.

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

“If their home is damaged in a natural disaster and they either don’t have insurance or are underinsured, they could be in a stressful financial situation,” Paddam said.

“So this is potentially an issue that is bigger than insurance. It is also a problem for lenders, regulators and governments.”

The report estimated that due to increased flood and cyclone risks, half of households in south-west Queensland, the Northern Rivers region of New South Wales and regional Western Australia faced premiums costing more than a month’s income .

($1 = 1.4883 Australian dollars)