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What disasters can home insurance cover?

Alex Ritchie avatar
Alex Ritchie
- 6 min read
What disasters can home insurance cover?

What disasters can home insurance cover?

Australia’s unique landscape is known for great things, but it’s also known for its harsh and unforgiveable environment – particularly in summer.

When you live in Australia, it is an unavoidable scenario to consider how a natural disaster may impact your home. This is where home insurance can be a lifeline.

But not all home insurance cover is created equally. In fact, areas that are more prone to disasters may see residents charged sky-high premiums. If you’re looking to buy a home in Australia, it’s crucial that you know what disasters home insurance can cover. And, more importantly, how you may be charged for that coverage.

Which disasters are covered under home insurance?

These are some of the common natural disasters a home insurance provider may cover you for, depending on your policy:

  • Fire - Most standard home insurance policies cover damage caused by fires, including bushfires. However, if the property is in a bushfire-prone area, the insurer may choose to not offer coverage, or charge a significant premium for it.
  • Hail - Damage from hail is typically covered under storm damage.
  • Lightning - Damage caused by lightning, including fires and power surges, is generally covered under storm damage.
  • Cyclones - May be covered in home insurance policies. However, some insurers may not offer coverage for some properties in the Northern Territory, northern parts of Queensland and Western Australia.
  • Floods - Flooding may be an event that your home insurance provider covers you for. However, there are exception suburbs, as the rate of flooding increases across Australia due to climate change.
  • Earthquakes - Damage by earthquakes is covered across most insurance policies. Further, if the earthquake causes additional issues, such as a landslide or tsunami, this may also be covered. However, this can be timeframe dependent - i.e. within 72 hours of the earthquake. 

Is your property in a disaster-prone area?

If you’re looking to take out home insurance, you’ll need to find out if your home is in a natural disaster-prone area. When you determine if your property is in a disaster-prone area, and what kind of disasters you may be affected by, you’ll have a better understanding of what you may be charged for coverage.

To do this, you’ll want to contact:

  • Your broker/real estate agent – they should be able to tell you key features of your property’s area.
  • Your local council.
  • Emergency services organisations in your area.

In Australia, two of the most common disasters are floods and bushfires. Some of the key things to be asking when looking into whether your property is in a disaster-prone area is flood mapping and historical flood records as well as your property’s Bushfire Attack Level (BAL) Rating.

Your BAL Rating may influence any premiums you may need to pay to receive home insurance coverage. The BAL Rating is a 5-level scale, ranging from low risk to extreme risk:

  1. BAL-12.5 – low risk
  2. BAL-19 – moderate risk
  3. BAL-29 – high risk
  4. BAL-40 – very high risk
  5. BAL-FZ – extreme risk (Flame Zone)

Unfortunately, in some cases insurers may not provide coverage if they think that the risk of a large claim being made is too great. Insurers look at a range of factors to come to this conclusion, including your claims history, the history and/or cost of natural disasters in your area, the year your home was built, the construction materials of your home, and much more.

Your postcode can determine your insurance premium

Insurance premiums are simply the amount of money you pay for your insurance policy. Insurers are constantly looking at data to measure the amount of risk involved in insuring your property.

If natural disasters are constantly reoccurring in your area, it’s inevitable that your insurer will increase these premiums. This is to account for the level of risk involved in insuring your home.

For example, if it’s highly likely your home will be hit by a flood every few years, and your insurer will need to pay you for damages, the insurer will increase the premium for having home insurance for this disaster.

In fact, if your property is in the Northern half of Australia (particularly along the coastline) it is commonplace to be charged higher insurance premiums than the rest of the country. The ACCC reported that home, contents and strata insurance is becoming so “increasingly unaffordable” in Northern Australia, that the rate of households going without insurance is double the rest of the country.

Insurance premiums are an important part of policy decisions – but they’re not the only part. When choosing your home insurance coverage, it’s important to also look at what the policy covers, its features, claim exclusions as well as any caps. This can help you to choose the right policy for your specific home and financial needs.

Unless you have a crystal ball, it’s impossible to predict how a natural disaster may impact your home. However, insurers will try and do just this. This is why it’s crucial that you do your research around whether your property is in a disaster-prone area and what insurance premiums are offered by a range of insurers, so you’re not surprised by any potential costs.

As the impacts of climate change are expected to worsen in Australia over the next decade, choosing the best home insurance for natural disasters for your budget is more important than ever.

Case study: Catastrophic Australian bushfires

The Australian bushfire season that began in September 2019 was a catastrophic event that received global attention. New South Wales was most significantly impacted, with the fire spreading across the country, particularly in the east coast.

An estimated 18 million hectares was destroyed, including more than 2,000 houses. Most significantly, 34 people were killed, alongside record-levels of wildlife.

The economic impact of these bushfires exceeded $4.4 billion, which left many impacted Australians wondering if their home insurance may be able to cover the impact, and would future insurance premiums rise as well? 

In 2020, Insurance Business Magazine spoke to Michael Vine, a director in the financial services ratings team at S&P Global Ratings about these concerns. Mr Vine explained that “even with the bushfires on such a scale this early during the season, insurers should be able to absorb losses stemming from the crisis.”

However, an ABC News article noted that following the devastating bushfire season, insurance premiums increased by almost 50%. 

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Product database updated 18 Jul, 2024

This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.