With climate change resulting in more severe and more frequent extreme weather events in Australia, it's not surprising that home insurance premiums jumped by 5.9% in 2021, the highest in the last seven years, according to GlobalData's latest research.
The study showed that personal property insurance took the most significant hit from natural disasters in 2021, accounting for 80% of claims. Additionally, it forecasts a bleak future for the Australian home insurance sector, expecting premiums to rise from $830.6 in 2021 to $916.9 in 2026, driven by rising insurance costs due to the increased frequency of natural disasters in the country.
Swarup Kumar Sahoo, senior insurance analyst at GlobalData, expects the rising insurance costs to cause more underinsurance in Australia.
“Rising insurance costs and increased frequency of natural disasters will leave around 4% of the Australian homes uninsurable by 2030,” Sahoo said.
GlobalData's report also noted that home insurance prices in Australia registered significant growth after every natural disaster. For example, Northern Australia, which is prone to natural disasters, reported growth in claims and premiums during the last five years. Natural disasters in 2019 increased average premiums on home insurance by 20% in Northern Australia, compared to 11% in the rest of Australia
The results align with other reports' findings, including Climate Valuation's prediction that Australia will face more frequent and severe natural disasters, with coastal areas among the most vulnerable places in the country due to flood risk. Further focusing on floods, the catastrophic flooding in southeast Queensland and New South Wales (NSW), deemed the costliest flood in the country, is expected to trigger a “devastating wave” of underinsurance.
Adverse weather is having a significant impact on Australia. Mark Howden, director of the Climate Change Institute at Australian National University and the vice-chair of the Intergovernmental Panel on Climate Change, recently warned that the intensity of climate change in recent years is leaving Australia parched.
Considering the impacts of climate change, the insurance industry has called on all Australian governments to lift funding to make the country more resilient to extreme weather events.
Sahoo commented: “Increase in home insurance premiums will lead to underinsurance or no insurance as lower and middle-income groups will look to reduce policy coverage if they are unable to afford high premiums.
“Government initiatives such as creating a reinsurance pool as well as better planning for land use and building sustainable homes will support in controlling the growth in average home insurance prices, which is expected to increase at a lower CAGR of 2.0% during 2021-26 compared to 2017-21.”