Actuaries Institute research exposes the home insurance affordability pressures caused by climate change

The Actuaries Institute has released a green paper on insurance costs in Australia, finding that climate change is increasing insurance affordability concerns for vulnerable Australian households.  

The paper, titled Home insurance affordability and socioeconomic equity in a changing climate, found that approximately 10% of all Australian households (or 1 million households) spend a mean average of over 4 weeks of their gross annual income on home insurance.  

These households, labelled by the report as ‘vulnerable households’ are concentrated in Northern Queensland, the Northern Territory and Northern NSW.  

The median spend of gross annual income on home insurance premiums in vulnerable households was measured to be 7.4 weeks. In comparison, the remaining households around Australia pay a median of just one week of gross household income. 

The gap suggests that vulnerable households face seven times greater affordability pressures than other households, with the report estimating this gap to increase over time due to climate change.  

Under a ‘low emissions’ scenario where temperatures rise less than 2°C by 2050, affordability pressure is expected to increase by 14% for vulnerable households. This represents an additional 7.6 days’ worth of gross household income spent on insurance premiums.  

Under a ‘high emissions’ scenario, where temperatures increase by more than 3°C by 2100, affordability pressure is expected to increase by 20%, or 10.7 days, for vulnerable households.  

In both scenarios, vulnerable households are affected the most, while costs for base households remain largely flat.  

The Actuaries Institute provides several recommendations to address insurance unaffordability, including: 

• increasing investment in resilience measures 
• subsidising insurance for low-income vulnerable households to supplement the Cyclone Reinsurance Pool and increase its effectiveness in improving affordability.  
• replacing stamp duty and levies, which can in effect worsen premium affordability, with more equitable alternative revenue sources.  
• improving land use and planning rules for existing and future developments, and improving building codes to strengthen construction standards 
• relocating communities from risk-prone areas. 

To read the full report, click here.