What impact is climate change having on insurance rates in Australia?

Premiums are rising, but why?

What impact is climate change having on insurance rates in Australia?


By Mark Rosanes

With extreme weather conditions increasing in frequency and intensity due to climate change, Australia is rapidly being pushed to the brink of becoming an “uninsurable nation,” a recent study conducted by the Climate Council has found.

The organisation warns that the situation can drive insurance premiums to unaffordable levels and make coverage inaccessible in large parts of the country.

The council’s research estimates that one out of 25 residential and commercial buildings – equivalent to 520,940 properties – in Australia will be “effectively uninsurable” by 2030, with the figures reaching as high as nine in 10 in the worst-impacted suburbs.

“Worsening extreme weather means increased costs of maintenance, repair, and replacement to properties – our homes, workplaces, and commercial buildings,” the climate change communications non-profit noted in the report. “As the risk of being affected by extreme weather events is increasing, insurers are raising premiums to cover the increased cost of claims and reinsurance.”

The council’s findings corresponded with a recent poll conducted by financial comparison website Mozo, which revealed that almost half (49%) of Australians believe that climate change has been pushing up their insurance costs

The survey involving a national representative sample of about 2,300 Aussie adults also found that 62% of homeowners, 67% of landlords, 61% of renters, and 57% of car insurance policyholders have seen their premiums skyrocket in the past year.

The report added that severe weather conditions have forced many to claim on their policies, resulting in an estimated $4.8 billion in insured losses for home and car insurance companies.  

“Insurance is increasingly out of reach for many Australians, as premiums rise on the back of floods, fires, and wild weather, with the situation set to worsen as climate change takes its toll across the country,” said Tom Godfrey, Mozo’s money expert.

“It seems clear that the increased frequency of extreme weather events will put significant stress on the insurance providers, and their customers are likely to feel the effects in the form of significantly higher premiums or, in extreme cases, the inability to access insurance.”

Is climate change pushing up home insurance premiums in Australia?

The answer is a resounding yes, according to Mozo’s poll. Almost two-thirds, or 62%, of home insurance policyholders saw their premiums rise in the 12 months ending in May. Of these, 37% said flood damage was the main cause of their claims, while another 37% claimed for storm damage. Almost a fifth (19%) claimed for bushfire damage, 16% for storm surge damage, and 16% for mould damage resulting from prolonged rain and storms.

“As premium hikes and severe weather events continue to erode the value of insurance for many Australians, many homeowners are increasingly financially vulnerable,” Godfrey explained. “With cheaper housing often built in disaster-prone areas such as on flood plains and in bushfire zones, it’s people who need the most financial protection who can least afford it.”

According to the survey, 30% of homeowners were planning to increase their excesses as a cost-reduction measure should the rate hikes continue in the next 12 months, while 20% said they would have to reduce their cover. Almost a tenth of respondents admitted that they would be forced to cancel their policies outright.

How is climate change affecting landlord insurance rates in Australia?

Global warming has a similar impact on landlord insurance, the research found. More than two-thirds, or 67%, of surveyed landlords have experienced premium increases in the past year, with almost a quarter reporting a significant rise.   

While many respondents did not file a claim during the survey period, 38% still did due to climate-related damages. Around half, or 49%, of landlords claimed for storm damage – the top reason – 46% for flood damage, 45% for bushfire damage, 38% for storm surges, and a quarter for mould build-up. 

If premiums continue to soar, a worrying 19% of landlords said they would have to drop their coverage. To reduce insurance costs, 31% said they would raise their excesses while 15% planned to decrease coverage levels. 

What is the impact of climate change on renters’ insurance?

Of the renters Mozo polled, 61% saw premiums rise between April 2021 and May 2022. More than a third (36%) said they filed a claim, with the top climate-related causes being bushfires (31%), storms (30%), and flooding (20%).

“Renters tend to get left behind in the home insurance conversation, even though a significant number of Australian households aren’t owner-occupied, particularly in areas most susceptible to repeated severe weather events such as flooding,” the report noted.

According to the survey, 32% of renters would increase their excesses to cut costs, 27% would reduce their cover, and 12% would be forced to cancel their policy if the rate hikes continue.

Are climate-related risks driving up car insurance premiums in Australia?

Yes, as far as the majority of survey respondents are concerned. Over half, or 57%, of car insurance policyholders reported rate increases, with 22% making a claim in the past year. Hail damage is the top climate-related cause at 21%, followed by bushfire and storm damage – both 16%, flood damage (13%), and storm surge damage (6%).

To save on car insurance, 21% of those surveyed were planning to raise their excesses, 19% would decrease their mileage, and 16% would lower the sum they are insured for. Meanwhile, 7% of respondents said they have no choice but to cancel their policies if premiums continue to surge in the next 12 months.

How can Aussies save on insurance costs?

In a recent interview, Michael Sherris, professor at the School of Risk and Actuarial Studies at the University of New South Wales (UNSW) Business School, noted how premium increases brought about by climate change and a host of other factors are causing insurance stress to many Australian households.

“Increased insurance premiums will add to the financial pressures that many households in Australia are facing as a result of increasing interest rates, inflation in food prices, increases in energy costs, and more,” he said. Similarly, when it comes to underwriting… companies will have to consider the financial risks, and price accordingly for risk exposure.

“All these affordability pressures are likely to increase the amount of underinsurance in Australia. This is already an issue since higher prices for goods and services usually lead to lower demand.”

He added, however, there are several practical measures Aussies can take to “minimise rising insurance costs.” These include:

  • Making decisions about insurance coverage and how much risk to take for different types of insurance: Policyholders may choose to increase the deductible to reduce the cost of insurance. This may be helpful for those driving fewer kilometres and can switch to an insurer or a policy, which charges premiums based on mileage. 
  • Reviewing their coverage regularly: Some key questions to ask are “How much are you paying?” and “Has [the amount] increased over time?”
  • Shopping around when renewing policies: When it comes to renewing insurance, it’s important to shop around and get multiple quotes as policyholders may find that moving to another insurer would help them save more on premiums compared to if they stayed with their insurance companies, especially if rates have increased throughout the years.
  • Considering a mutual insurer: Although there are very few mutual insurers in Australia, these firms can sometimes provide a better deal compared to for-profit insurers since they may not load the premium for profits and returns to shareholders. 

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