Nearly one in eight Australian households (around 1.24 million households) are facing home insurance affordability stress in 2023, up from one million households a year ago, according to Actuaries Institute's latest research.
The research involves two related reports commissioned by the Actuaries Institute:
The research found that median home insurance premiums jumped by 28% to $1,894 in the year to March 31, 2023, with the highest risk properties, such as those in flood-prone areas, up by 50%.
According to the Home Insurance Affordability Update, the number of “affordability stressed” Australian households – those that spend more than one month's worth of their gross annual income on home insurance – rose from 10% to 12%. These households spend on average 8.8 weeks of their income on home insurance, more than seven times what the average household spends.
“This is the largest increase in home insurance premiums I have seen over the last two decades,” Paddam said.
Building cost inflation, which has spiked during the past two years due to supply chain shortages, accounted for half the increase in home insurance premiums. The research also noted the impacts of the increase in natural disasters and higher reinsurance costs, driven by climate change.
“Based on science, we expect these home insurance affordability pressures are likely to continue to worsen due to climate change. If we don't take policy action now, we can expect to have more people abandoning home insurance. Without insurance, households will struggle to recover from disasters, and governments, taxpayers, charities, and many informal means of support will be left to assist. This usually results in households receiving some support but will not allow them the full economic recovery they would receive if insured,” Paddam said.
Funding for Flood Costs: Affordability, Availability and Public Policy Options recommended continual investment in effective risk reduction initiatives, along with government intervention such as reforming insurance-based taxes or targeted subsidies to provide an immediate impact and encourage Australians to take out insurance.
The report also recommended introducing interim cost-sharing measures, such as an insurance or reinsurance pool that includes riverine flood or other types of government funding, if relief needs to be accelerated.
Evelyn Chow, head of portfolio management APAC for Swiss Re and the lead author of Funding for Flood Costs: Affordability, Availability and Public Policy Options, said risk reduction is the only way to address affordability stress.
“An optimal mix of measures could be supported by using better data, technology, and climate risk frameworks,” Chow said. “If the government was to give consideration to an insurance pool, any future model would need to consider the fact that flood risk is highly localised in Australia among a relatively small number of households with significant exposure.”
Actuaries Institute CEO Elayne Grace commented: “Flood insurance affordability pressures are acute and there is a need to address this problem urgently. We need to tackle this problem holistically, with a well-designed suite of policy measures to achieve long-term benefits for all Australians.”
