Home→Australian Response→Home insurance bills are soaring as climate risks grow. The government should step in
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18 August 2023, The Conversation: Home insurance bills are soaring as climate risks grow. The government should step in. The Actuaries Institute of Austalia has just confirmed what many Australian households already know – home insurance is increasingly unaffordable. It found average premiums climbed 28% in the year to March, while premiums for higher-risk properties, such as those in flood-prone areas, climbed 50%. The institute also found 12% of Australian households – 1.24 million – are experiencing extreme home insurance affordability stress, defined as paying more than four weeks of gross household income on premiums. Twelve months ago, this figure was 10%, or 1 million households.
Insurers are increasing premiums in locations at high risk of climate-related damage throughout the world and even withdrawing home insurance completely in places such as California and Florida. The high premiums are spreading to households in lower-risk locations through a complex interconnected system of rising private reinsurance charges (insurance for insurers), more frequent and worse weather events, and increasing rebuilding costs. The case for a government-owned reinsurance pool. The Actuaries Institute put forward risk pooling as an emergency solution. It would work through a government-owned and run “reinsurance pool”, providing nationwide coverage for claims relating to extreme weather events. Private insurers would pass on their risk to the state-owned pool, which would use the pooled premiums to ensure every insurer was covered. In the past, the insurance industry has been overwhelmingly opposed to the idea, viewing it as interfering in a traditionally private market. As recently as March 2022, as Queensland and NSW reeled in the aftermath of catastrophic flooding and its implications for insurance, the Insurance Council of Australia responded to calls to extend the newly created cyclone reinsurance pool by saying the private sector did things better. The industry’s concerns are not totally unfounded. Setting up a risk pool without taking steps to mitigate the underlying risk would simply mask, or even exacerbate, the problem. It could facilitate insurance and rebuilding in high-risk areas that will suffer repeated losses. Read more here
