Housing Insurance and Climate

Last week the Actuaries Institute published “Home Insurance Affordability and Socioeconomic Equity in a Changing Climate” paper. The paper examines the impact of climate change on the cost of housing insurance for Australians.

Given evidence of climate change, namely the catastrophic fires in 2019-20 and the recent floods, particularly in Northern NSW and southern Queensland, the issue of home insurance is on the radar for Australian home owners.

The Actuaries Institute found that the median Australian household uses 1.1 weeks of gross annual income to pay a median annual home insurance premium of about $1,500. Income after taxes and household expenses is lower, so home insurance premium costs are a much larger portion of net household income.

However, home insurance premium affordability varies from 0.2 weeks for households with the most affordable insurance premiums to in excess of 7.1 weeks for 0.5 million (5%) of households with the most unaffordable insurance premiums.

There are one million households with home insurance premium affordability exceeding four weeks, and these households are concentrated in northern Queensland, NT and northern NSW. Individuals living in these vulnerable households are more likely to be older, retired and renting, have lower insurance literacy, live in socioeconomically disadvantaged areas, and have lower current saving balances.

The Actuaries Institute argues that climate change is not just an environmental and financial issue, but also one of socioeconomic equity. Households that are already struggling to pay home insurance premiums will also suffer most from the impacts of climate change on home insurance premiums.

The paper contains a number of recommendations to address home insurance affordability and the socioeconomic inequities of climate change, including:

• Investing in resilience measures to address home insurance affordability pressure for vulnerable communities. These measures include infrastructure projects and direct subsidies for vulnerable households.
• Implementing better building standards and ensuring land use and planning have the potential to reduce inequity.
• In areas where mitigation and adaptation systems cannot adequately or economically manage the losses suffered from persistent severe weather events and rising sea levels, communities may need to consider relocating some or all of its people and assets.
• Improve policy and decision making through better information on natural hazards and the impact of climate change.
• Exploring nature-based solutions to adaptation and mitigation. The implementation of resilience measures should include close consultation with First Nations Australians, including recognition of indigenous knowledge on land management.

You can access the paper here: https://www.actuaries.asn.au/

• Topics:

• My House My Home
• Environment