Australia’s climate risks are making home insurance unaffordable

More expensive: A shopper at a retail store in Sydney.Many Australian households are struggling with elevated inflation, rising borrowing costs or soaring rents. —Reuters

SYDNEY: Australian home insurance premiums jumped the most in two decades in the past year, driven by weather catastrophes and higher building costs, says a new research.

Median home insurance premiums surged 28% to A$1,894 (US$1,240) in the year to March 31, according to a report released yesterday by the Actuaries Institute.

Premiums in the highest-risk properties – such as those in flood or bushfire-prone areas – shot up 50%, it said.

The number of “affordability stressed” households - those spending more than one month’s worth of their gross annual income on home insurance – climbed to 1.24 million from one million households a year ago, with the overall proportion rising to 12% from 10%.

On average, those households spent 8.8 weeks of their income on home insurance.

The new data comes as many Australian households are already struggling with elevated inflation, rising borrowing costs or soaring rents.

“Half the increase in home insurance premiums relates to building cost inflation, which has spiked during the past two years due to supply chain shortages,” said Sharanjit Paddam, one of the report’s authors. “There’s also been an increase in natural disasters and higher reinsurance costs, driven by the climate change impacts we’re already seeing.”

The hardest-hit households are in the flood-prone Northern Rivers region of New South Wales, as well as north Queensland and Western Australia, where cyclone risk is high, the research showed.

Extreme weather catastrophes are becoming more common around the globe with climate scientists warning that one-in-a-100-year disasters will occur more frequently unless carbon emissions are reduced dramatically.

Prime Minister Anthony Albanese announced last month that Australia will join German Chancellor Olaf Scholz’s climate club to help expand international cooperation on tackling global warming amid record temperatures.

“Based on science, we expect these home insurance affordability pressures are likely to continue to worsen due to climate change,” Paddam said.

“Without insurance, households will struggle to recover from disasters and governments, taxpayers, charities and many informal means of support will be left to assist.” — Bloomberg