Three months after floodwaters filled the streets of Bundaberg, Queensland, the Melbourne Hotel remains closed – one of approximately 200 homes and businesses inundated in March 2026, and a visible sign of a growing national crisis in which home insurance is becoming unaffordable for property owners in flood-prone areas. It was the town’s third serious inundation in 16 years – in 2013, more than 4,000 homes were submerged.
According to the AFR, what made March particularly costly was what had not been built before it. The Bundaberg Regional Council had declined a $175 million levee project, fully funded by Queensland and federal governments three years earlier, over concerns about the ongoing maintenance cost of the connected pump infrastructure. The Queensland government is now examining property buybacks while the council explores floodgate installation.
Insurance premiums in Bundaberg were already elevated before March and will rise further when the latest event is factored into pricing models – pushing coverage beyond reach for many residents and business owners. Andrew Hall, chief executive of the Insurance Council of Australia (ICA), visited Bundaberg this year as part of a broader tour of flood-affected communities including Kempsey, Taree, and towns across southwest Queensland and north of Sydney. “They’ve all got the same problem. They’re in mapped flood zones; that data is now feeding into the pricing for insurance, and it’s becoming unaffordable,” Hall said, as reported by AFR.
In Kempsey, New South Wales, the Macleay River breached its banks last year, flooding 50 businesses. One supermarket owner had let coverage lapse after receiving a quoted annual premium of $250,000. A residential property upstream in Smithtown retained flood insurance at a cost of $29,000 a year. A proposed levee in nearby Taree was rejected by the local council in 2024, which determined it offered limited protection relative to its cost.
National home insurance premiums have risen 51% over the past five years, according to data analytics firm Finity, with steeper increases in the highest-risk areas. The Australian Securities and Investments Commission (ASIC) has taken IAG and QBE to court over the application of premium discounts, adding regulatory scrutiny to insurer pricing conduct. The Actuaries Institute estimates 15% of Australian households currently face insurance affordability stress – defined as premiums exceeding four weeks of gross household income – up from 10% in 2022. In the Northern Rivers region of New South Wales, that figure exceeds 60%.
“Australia’s housing market presents a paradoxical, dual crisis: rising prices relative to wages in metropolitan areas create intergenerational inequity, while climate-driven price declines in high-risk regions create geographic inequity,” Elayne Grace, chief executive of the Actuaries Institute, wrote in a policy paper last year, as reported by AFR. The ICA reports that 80% of the roughly 240,000 homes carrying an annual flood risk of up to 5% hold no flood coverage. The Climate Council projects more than half a million properties will be uninsurable by 2030.
In its Insurance Climate Vulnerability Assessment – titled Mind the Gap – released in March 2026, APRA found that under both scenarios examined, the protection gap could reach one in four homes by 2050, equivalent to approximately one million additional uninsured properties. In rural areas, the gap could exceed 40%. The assessment was conducted with Allianz, Hollard, IAG, QBE, and Suncorp, which together account for around 80% of the home insurance market by gross written premium.
Under the higher physical risk scenario, expected annual losses from weather events could rise from around $7 billion today to more than $16 billion by 2050. “Insurance plays a critical role in Australia’s financial system by shifting large financial losses away from households and lenders to insurers and reinsurers that are better equipped to absorb them. When homes are uninsured or underinsured, losses are more likely to be borne directly by households, banks or by the government,” said APRA member Suzanne Smith.
Paula Jarzabkowski from the University of Queensland identified a structural constraint in relying on insurance alone. “Insurance is a transfer of risk; it does not reduce the underlying risk. We have to create incentives to reduce that risk,” she said, as reported by AFR. That framing has direct implications for the industry: if insurance cannot solve the affordability problem on its own, the mechanism for reducing premiums in places like Bundaberg runs through government infrastructure investment and land-use planning, not product design.
The insurance industry’s position is consistent: no pricing mechanism resolves the problem without first reducing the underlying exposure. The situation in Bundaberg – where a fully funded levee was declined and the town flooded again – illustrates what Hall describes as a pattern of deferred decisions with compounding costs. “Every year we put this off, it’s becoming more and more expensive, and it will become more and more challenging to fix, and more and more people will be without insurance. Unless you reduce the risk that’s driving the pricing, you don’t get rid of the problem,” Hall said, as reported by AFR. The federal government agreed to guiding principles for resilience investment under the Hazards Insurance Partnership in March 2026, but the May budget did not include the expanded infrastructure funding the industry had called for. Assistant Treasurer Daniel Mulino described the rising number of people dropping coverage as a “wicked problem” at an Insurance Council event last year.
Monash University, the Financial Rights Legal Centre, the Resilient Building Council, and Finity released a Housing Resilience Action Plan 2030 last month, setting out more than 50 recommendations centred on a national risk and resilience rating system. Under the proposal, properties would receive scores based on their capacity to withstand disaster events, with insurers committing to incorporate those ratings into premium pricing – creating a direct link between measurable resilience improvements and coverage costs. The authors are currently briefing politicians, insurers, and major banks on the recommendations.
