Climate change to intensify insurance affordability pressure
It deemed one million households (approximately 10%) vulnerable because they spend more than four weeks of their gross annual income on home insurance. These households may likely be in northern Queensland, Northern Territory, and northern New South Wales (NSW), while the rest are in capital cities. For households whose annual home insurance premium surpasses $2,000, half earn less than $65,000. These figures align with Mozo’s latest research, which found that 67% of landlords, 61% of renters, and 57% of drivers reported insurance premium increases on their policies in the past 12 months.
Actuaries Institute’s latest report claimed that as climate change worsens, so will home insurance affordability pressure – with the impact far greater on vulnerable households than households in capital cities, making it more challenging to recover from natural disasters or prepare and pay for measures to reduce this risk.
Read more: Actuaries Summit: A climate wake-up call for the insurance industry?
Paddam said vulnerable households are more likely to be older, renting, in lower socioeconomic areas, and have less savings.
“By acting today, policymakers can begin to address home insurance premium affordability and the
socioeconomic inequities of climate change,” Paddam said. “Policy changes will require strong collaboration between multiple parties, including local, state, and Commonwealth governments, insurers and banks, builders and developers, and First Nation Australians.”
The paper recommended:
Structural solutions to improve infrastructure resilience (such as levees, floodways, and sea walls);
Managed retreat from risk-prone areas;
Better land use and planning and changes to building codes to allow for the impact of climate change over time and to reduce development in high-risk areas;
Nature-based solutions for improving resilience;
Close consultation with First Nations Australians on more resilient ways of living within the Australian landscape;
Options to subsidise insurance for low-income households to supplement the cyclone reinsurance pool;
Improved data collection and availability on home insurance affordability and vulnerable assets, natural hazards, and the impact of climate change; and
Replacement of state stamp duty and levies with more equitable and efficient sources of revenue.
Actuaries Institute chief executive Elayne Grace has called on policymakers to address home insurance affordability, especially in vulnerable areas.
“The Australian Actuaries Home Insurance Affordability (AAHIA) Index will give policymakers insights into home insurance affordability for households, the flow-on effects on the economy, and the implications for planning and disaster recovery,” Grace said. “The most effective use of finite government resources will be to assist the most vulnerable households expected to experience the greatest pressures from the changing climate.”
