More households in Australia are struggling to pay for their home insurance as climate-related risks drive up premiums, which could also affect billions of dollars worth of mortgages.
The Institute of Actuaries released a report on Monday showing that by March 2024, 15 per cent of Australian households, or 1.61 million, will struggle to pay their home insurance. This figure represents a 30% increase compared to the 1.24 million households in the same situation a year earlier.
We talk about financial hardship when insurance premiums represent more than four weeks of a household’s income. The report’s lead author, Sharanjit Paddam, fears that this trend will continue due to the increasing frequency of natural disasters linked to climate change, which could further increase insurance costs.
Rising insurance premiums are contributing to inflation in Australia and becoming a significant burden for some homeowners, particularly those who cannot afford to insure their homes against climate-related risks and building costs for students. The report highlights that 5% of households with a home loan are under extreme pressure, paying an average of A$5,216 ($3,505) a year for insurance, more than double the average premium of A$2,124.
Households with the most severe affordability problems have about A$57 billion in outstanding mortgages, representing about 3% of all mortgage assets in March. Ms Paddam warned that these households could face serious financial difficulties if their homes were damaged by a natural disaster and they did not have adequate insurance cover.
The report also said that in areas prone to flooding and cyclones, such as south-west Queensland, the Northern Rivers region of New South Wales and regional Western Australia, half of households spend more than a month’s income on their insurance premiums.
This situation highlights the wider implications, not only for the insurance sector, but also for lenders, regulators and governments, all of whom are grappling with the challenges of climate change and its impact on the availability of insurance.
Reuters contributed to this article.
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