More than six months after Cyclone Debbie dealt a $1.4bn blow to the Australian economy, climate experts are increasingly concerned that lessons haven't been learnt, as many Australians continue to expose themselves to significant risk by not taking up adequate cover against extreme weather.
Climate research groups, including the Climate Council, all agree that extreme weather events, such as heavy rainfall, storms and ocean swells tied to rising sea levels, and bushfire-prone conditions – are becoming increasingly severe and intense.
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This is a sizable problem considering a Climate Council finding that eight out of 10 Australian homeowners are underinsuring their home and contents due to lack of funds or the lack of awareness on the potential amount of repair costs, Domain
Underinsured homeowners also have more to lose if their properties get badly damaged because of the high house prices in Sydney and Melbourne, which doubled in the last 10 years, and record-high household debt levels.
“Home-and-contents insurance has become less and less affordable for homeowners in recent years, and the industry continues to raise premiums to the point where homeowners in some areas, particularly those prone to natural disaster, have been priced out of the market,” a Choice official told Domain. “An increase in extreme weather events will only make matters worse for those who are already stretched to pay for home insurance.”
According to the Climate Risk
report, in some high-risk areas, premium prices are 10 times higher than premiums in locations that are less vulnerable to weather hazards.
In terms of rebuild costs, Richard Deakin, CoreLogic’s head of Australian and New Zealand Insurance Research, said a lot of people don't really understand how much rebuilding their property will actually cost “because they're not property experts.”
“They may look at their sales price and say ‘the property is worth $400,000 on the market…' but it might cost $500,000 to rebuild that property, if not more,” he told Domain
But the underinsurance problem runs deeper than a lack of affordability and the consumers' lack of knowledge, the study found.
“Transparent risk disclosure to homebuyers is a vital precursor to risk mitigation, management, and adaptation,” Dr Karlon Mallon and his team of researchers wrote. “Currently, this market failure means that many homes are being built in the wrong locations, specified for the wrong level of hazards, using the wrong materials and the wrong designs. The first unwitting victims of this market failure are homebuyers. The second unwitting victims are taxpayers.”
Exacerbating the underinsurance problem in the country is the complexity of insurance policies. A central complaint was the lack of standardised key terms across insurance products, which “would help consumers understand their cover and not be caught out by restrictive definitions that catch them out at claim time,” Choice told Domain
Market loss due to Cyclone Debbie estimated at $1,658m
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