• 30% increase in home insurance affordability stress affects 1.6 million Australian households.
• 5% of mortgage holders face extreme insurance stress, risking home loan defaults.
• Collaboration needed between government, insurers, and lenders for sustainable solutions.

A recent report by the Actuaries Institute reveals a concerning rise in home insurance affordability stress in Australia. The “Home Insurance Affordability and Home Loans at Risk Report,” authored by Finity actuaries, shows a significant 30% increase in the number of households struggling with insurance costs, reaching 1.6 million in the past year.

Escalating Insurance Costs

The report highlights that these households spend an average of 9.6 weeks of their gross income on home insurance—seven times more than the average Australian household. Overall, the proportion of “affordability-stressed” households—those facing home insurance premiums exceeding one month’s gross income—rose to 15% by March 2024, up from 12% the previous year.

Lead author of the report, Sharanjit Paddam explains, “While insurance remains generally affordable for 85% of households, it’s concerning that 1.6 million households are now struggling to afford to insure their homes, up from 1.24 million a year ago.” He attributes this to premiums rising faster than wage growth, exacerbated by increasing natural disaster risks linked to climate change.

Regional Impact and Broader Implications

Regions like Southeast Queensland, which has seen high population growth, have the most households under extreme affordability pressure. However, the largest proportions of stressed households are found in Southwest Queensland, NSW’s Northern Rivers, regional Western Australia, and the Northern Territory. In these areas, half the population faces home insurance premiums that exceed a month’s income due to high flood and cyclone risks.

The report also delves into the impact on Australia’s $2.3 trillion home loan market, estimating that 5% of households with mortgages face insurance affordability stress. For these 180,000 households, the average home insurance premium is $5,216 a year, more than double the national average of $2,124.

Paddam warns, “These 180,000 households with home insurance affordability stress represent about $57 billion worth of home loans. If their home is damaged by a natural disaster and they either don’t have insurance or are underinsured, they could find themselves in a stressful financial situation. So, this is potentially a problem that’s bigger than just insurance. It’s also a problem for lenders, regulators, and governments.“

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The Actuaries Institute emphasizes the need for collaboration among governments, insurers, lenders, and investors to develop sustainable finance measures, such as resilience loans and bonds. CEO Elayne Grace advocates for a proactive approach: “We know as a country we need to manage the risk of the changing climate. Sustainable finance should be part of the solution. It creates a path forward for households, investors, insurers, and lenders, and allows government to focus on households in most need and community-level measures.“

As climate risks continue to rise, the need for comprehensive, sustainable solutions becomes more urgent. The Actuaries Institute’s report underscores the importance of addressing insurance affordability as a critical component of financial stability and resilience for Australian households.