One million Australian households spend more than four weeks’ income on home insurance: how does your premium compare?

New research shows that climate change is set to widen the gap in home insurance affordability between average and vulnerable Australian households.

According to the Actuaries Institute Green Paper, Home insurance affordability and socioeconomic equity in a changing climate, approximately 10 per cent of households (one million) – defined as ‘vulnerable’ – spend more than four weeks of their gross annual income on home insurance. On average, these vulnerable households are paying 7.4 weeks of their income for home insurance. In contrast, the Australia-wide average is 1.1 weeks.

Sharanjit Paddam, principal at Finity Consulting and co-author of the paper, said: “Climate change will increase home insurance affordability pressure, but the impact will be far greater on vulnerable households – those already facing affordability pressures.”

“This will make it harder for them to recover from natural disasters or to prepare and pay for measures to reduce their risk.

“These vulnerable households are more likely to be older, renting, in lower socio-economic areas and have less savings. By acting today, policymakers can begin to address home insurance premium affordability and the socioeconomic inequities of climate change.”

Earlier this year, the Climate Council released a report which showed that nationwide, one in every 25 properties will be at high risk of having annual damage costs that will make them effectively uninsurable by 2030.

In response, Climate Councillor and leading economist Nicki Hutley said: “It is clear that Australia is fast becoming an uninsurable nation.”

“Skyrocketing costs or flat-out insurance ineligibility are becoming more and more widespread under climate change. As an economist, I find these new numbers shocking and deeply concerning,” she said.

According to Mr Paddam: “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 following recommendations were outlined in the report:

• 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 as well as vulnerable assets, natural hazards and the impact of climate change
• Replacement of state stamp duty and levies with more equitable and efficient sources of revenue

According to the paper, the average (mean) home insurance premium across Australia is $1,534. Australians living in parts of northern Queensland and northern WA currently pay the highest amounts for insurance coverage, with mean annual home insurance premiums over $3,000.

Communities in the Northern Territory are mostly impacted by cyclone risk, while inland New South Wales and southern Queensland have high exposure to flood risks.

If you’re interested in finding out if your home insurance premium is competitive, consider comparing it to other policies on RateCity’s database to see how it stacks up.

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