Insurance problems in cyclone-prone northern Queensland may be the canary in the coalmine for wider issues facing Australia, as risks from extreme weather increase over coming decades.

Rising populations, weak planning rules, lack of access to information and increasing climate change challenges are setting up many homeowners for insurance market shocks, according to a report compiled for the Climate Institute of Australia and consumer group Choice.

“That insurance is always available and affordable, and will continue to be so, is a common misunderstanding,” the paper by analyst Climate Risk says.

“Property-buyers must act with caution.”

The spotlight on insurance affordability and availability has fallen on north Queensland following cyclones and flooding that led some underwriters to withdraw and sent premiums soaring.

The report – Buyer Beware: Home Insurance, Extreme Weather and Climate Change – highlights wider implications as the frequency and intensity of catastrophe events increases.

It finds premiums in some high-risk regions are already 10 times those of low-risk locations, and that expensive areas can be found in Australia’s largest cities.

“The impacts will continue to intensify and spread,” Climate Institute CEO John Connor told insuranceNEWS.com.au. “The premiums are the canary in the climate risk coalmine.”

Beach, river and bushland locations are often the most appealing to homeowners, but such areas are predicted by climate scientists to become more hazardous.

“In many parts of the country, climate change is mixing with natural variability to pile on the risk of damage to Australian homes,” the report says. “Many Australians are unwittingly buying the wrong house in the wrong location.”

The research suggests extreme weather risks and high-end climate change projections could raise home insurance premiums by 92% in some areas and erode property values by at least 20% within a 30-year mortgage term.

Despite the problems, federal, state and local governments are doing little to discourage settlement in high-risk locations, information held by councils is not easily available to consumers and property developers are not under a consistently applied obligation to make buildings resilient.

In some cases homes are being built or renovated with even less concern for the potential dangers than they were 50 years ago.

“Insurance companies have no choice but to charge higher premiums to cover high probabilities of loss,” the report says. “This is a market failure in the property sector, not insurance, which leaves unwary home-buyers at risk of discovering, too late, high and possibly unaffordable insurance premiums.”

The report says governments should shepherd or regulate development patterns so they are appropriate and resilient, make hazard information available and mandate disclosure of risks during property sales. It also suggests current and projected insurance premiums should be highlighted.

Mr Connor says insurers are considering climate change impacts and the issue and its effect on pricing should be given greater prominence.

The report suggests insurers should disclose weather or climate factors behind costly or unavailable cover and include related risks such as erosion, soil contraction and sea surges in policies.

Overall, though, consumers must do their own research on potential issues, and insurance policies and risk-based premium pricing can sound the loudest alarms.

“It appears unlikely that Australian home-buyers can rely on local governments, planning laws or building codes for protection or advice,” the report says. “In the absence of consumer protections such as these, home-owners can expect poor resilience or imprudent placement to be reflected in higher insurance costs and lower insurance availability.”

The research suggests online research into premiums by prospective home-buyers can reveal underlying risks for further investigation.

The study says five insurability risk indicators, tested through online price quotations, can capture the underwriters’ view of properties.

Online quotes can highlight the potential for underinsurance; premiums that are significantly higher than for equivalent properties elsewhere; and whether insurers are not prepared to provide standard online quotes for the property, location or region.

Large differences between quotes for the same property can signal problems, while home-buyers can be alerted to potentially devastating expenses by checking if policies include local hazards such as storm surges and landslips.

Mr Connor says home-buyers go to numerous auctions and inspections in the search for the perfect place, but usually put little effort into researching the property’s risks.

“When it comes close to making a decision they should be doing this,” he says. “The home is probably the biggest purchase that most people make in their lives.”