Aussies in over their heads as insurance premiums rise 28%

According to the institute, 12 per cent of Australian households are now spending more than one month’s worth of their gross annual income on home insurance, placing them in a state of insurance affordability stress.

Overall, the report estimated that 1.24 million Australian households – or nearly one in eight – are facing home insurance affordability stress, up from one million households a year ago.

Moreover, an estimated 171,000 households across Australia are said to be enduring extreme affordability pressure, with more than half of those insurance premiums dedicated entirely to financial protection from riverine flooding – when rivers exceed capacity. Those households are found to be paying an average of $8,800 per annum.

Sharanjit Paddam, an actuary and co-author of the report, explained that two major factors had contributed to the sudden spike in premiums.

“Half the increase in home insurance premiums relates to building cost inflation, which has spiked during the past two years due to supply chain shortages. There’s also been an increase in natural disasters and higher reinsurance costs, driven by the climate change impacts we’re already seeing,” Mr Paddam said.

And he flagged that there is no relief in sight with climate-related indicators forecasting increasingly extreme weather events as the crisis exacerbates.

“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,” he said.

“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,” Mr Paddam added.

Affordability stress has been equally severe for those who not only live in Australia’s flood-prone areas, but rely on the land for their livelihoods.

Farmers for Climate Action, which represents more than 8,000 Australian agricultural business owners, has flagged that farm insurance is simply becoming unaffordable, with the body urging governments to take action on reducing emissions or risk the future of its $71 billion agricultural industry.

“We’ve dealt with major floods in 2009, 2011, 2013 and 2021, but nothing could have prepared us for February 2022,” said northern NSW farmer Peter Lake.

“We lost fences and fodder and were forced to sell most of our stock. Even when the waters receded, we were flood-free but not mud-free. We battled mud for months,” he said. And then, his insurance came up for renewal.

“I was quoted $19,000 per year to insure my farm, which is just too much. We’ve had to weigh up not insuring our farm equipment, sheds and fences. We’re only insuring the house and a horse float now.”

“To stop the costs of climate change going higher, we need urgent action to reduce emissions, including from coal, oil and gas, right now, this decade,” Mr Lake said.

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