As of March 2024, 15% of Australian households were experiencing home insurance affordability stress, which is defined as having premiums that cost more than four weeks’ of their incomes, as per the report from the Actuaries Institute
Home insurance is becoming unaffordable for a growing number of Australian households as growing climate threats drive up their premiums, potentially putting billions of dollars in mortgage loans at risk, according to a report on Monday.
As of March 2024, 15% of Australian households were experiencing home insurance affordability stress, which is defined as having premiums that cost more than four weeks’ of their incomes, as per the report from the Actuaries Institute.
That is equivalent to 1.61 million households, compared to 1.24 million found to be facing affordability stress a year back – a rise of 30%.
Growing insurance costs have fuelled inflation in Australia and there are signs that 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 rising risk of natural disasters associated with climate change, which will continue to put upward pressure on premiums, according to the report’s lead author Sharanjit Paddam.
The report estimated that 5% of Australian households with home loans were experiencing extreme pressures, with their insurance premiums averaging A$5,216 ($3,505) a year, more than double the average of A$2,124 ($1,439.55).
Those households facing the most extreme affordability stress have about A$57 billion ($38.63 billion) in outstanding mortgage loans as of March, representing 3% of all home loan assets, it added.
If their home is damaged by a natural disaster and they either do not have insurance or are underinsured, they could find themselves in a stressful financial situation, Paddam said.
So, this is potentially a problem that is bigger than just insurance. It is also a problem for lenders, regulators and governments, Paddam added.
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.
