The risk of coastal flooding in “any given year” is 1% for 500,000 properties in Australia – equal to a 25% risk of being inundated over the course of a standard mortgage, according to a new report from Aon and Monash University. 

The report says the at-risk properties will not have insurance coverage for “actions of the sea”. 

“While a 1% chance may not sound like much ... compound this over 30 years, the average time it takes to pay down a mortgage, and it’s a one-in-four chance – and that’s without sea level rise,” Aon climate risk analyst Tom Mortlock said. 

For those designing or underwriting critical coastal infrastructure, such flood scenarios “cannot be ignored”, he says. 

“Throw in the fact that if it happens, the financial burden is on you because insurers tend to exclude cover for actions of the sea – plus sea level rise in the interim weighing the probability against you – would you think twice about buying the property? Would you think twice about lending on a property in this situation?” 

Aon’s Combined Hazards Information Platform calculates 370,000 homes and 120,000 commercial properties across Australia are subject to this level of flood risk, which includes storm surge and high tides, but not waves or coastal erosion.  

By 2100, glacier and ice sheet melting is likely to push sea levels up by 0.44 metres to 0.77 metres, the researchers say, threatening increased damage to coastal properties. 

Lenders face the risk of mortgage defaults or worsened loan to value ratios as property may devalue due to repair costs. 

“It is important for those designing, building and underwriting long-life assets in the coastal zone to understand ... the potential for much higher scenarios due to uncertainty in processes underlying rapid ice loss,” the report says. 

“Sea level rise fundamentally alters the frequency with which we experience coastal flood and erosion events. 

“Given the long-term nature of both sea level rise impacts and home loan terms, it may be prudent for financial institutions to begin considering coastal erosion risk as a credit risk for some high-value coastal properties in their portfolios.” 

Most home and commercial property policies in Australia exclude actions of the sea, which refers to erosion or flooding on the open coast resulting from storm tide or wave action, and in some cases storm surge from tropical cyclones. 

Reinsurance for critical coastal infrastructure such as roads and railways is renegotiated on an annual basis, and Mr Mortlock says sea level rise should be considered by state governments as a factor increasing premiums.  

The frequency of extreme sea levels measured at gauges in Fremantle and Sydney’s Fort Denison tripled in the latter half of the 20th century compared with the first half. 

“The evidence is stark,” Mr Mortlock says. 

See the report here.

From Insurance News magazine: As the US grapples with unprecedented fire, flood and storm risks, what lessons can Australian insurers learn?