Home and contents policies need to be “simpler and fairer”, insurers should be proactive on underinsurance and more assistance for low-income households is needed as customers struggle to access and afford cover in a changing climate, consumer groups say in a report released today.

The report makes 14 recommendations on issues such as complexity, unaffordability, lack of information on natural hazard risks, mitigation pricing responses and the need for action beyond insurance.

Choice CEO Alan Kirkland says coordinated action by governments and the insurance industry is required to ensure people are protected against extreme weather event impacts.

“Home and contents insurance needs to be simpler, fairer and more affordable,” he said. “We also need solutions to the problems that can’t be solved by insurance alone - such as planning for relocation of communities in high-risk areas and funding for people to make their homes more resilient.” 

The report, Weathering the Storm: Insurance in a changing climate, was commissioned by Choice, Climate Council, Financial Rights Legal Centre, Financial Counselling Australia and the Tenants Union of NSW.

Some 67% of policyholders in surveys reported higher-than-expected premium increases, and 39% said they were not given an explanation. Some 39% said their home had been impacted by extreme weather in the past five years, while only 46% had used a product disclosure statement to understand their cover.  In the past three years, 39% had changed their policy or switched providers to lower premiums. Changes included removing flood cover, raising the excess or reducing the sum insured.

The report says the Federal Government should legislate standard definitions, and require insurers to warn consumers when they are likely to be underinsured, while the industry should identify natural hazard risk pricing in component premiums, and adopt a consistent approach to debris removal.

Landlord policies should include temporary accommodation for renters and state and territory governments should amend residential tenancy laws to require landlords to take reasonable steps to make rented properties more resilient, the groups say.

The report proposes that the Federal Government trial subsidies in areas where cover is unaffordable for most people, particularly for those on low incomes, explore microfinance products, and review affordability issues, particularly for lower income households in extreme weather prone areas.

A database providing easily understood, publicly available information on climate risks for properties should be developed, and more should be done to ensure people are rewarded for taking steps to mitigate the risks, it says.

The report calls for National Cabinet to agree on a clear and consistent approach to support relocations where necessary and says governments should provide funding so exposed communities can consult on ways to mitigate risks, including the possibility of relocation.

Financial Rights Legal Centre CEO Karen Cox says people on low incomes don’t have the same financial means to recover or adapt to a changing climate, and low-cost housing, including rental properties, tends to be in higher-risk areas and built to less resilient standards.

“It has been particularly concerning to see how many people were left without flood cover after the last few years of record rainfall, due to inability to afford the premiums,” she said. “Many people are being left behind by rising insurance premiums in the face of increasing climate-related risk.”

The Insurance Council of Australia (ICA) says a review it has commissioned from Deloitte on the floods will identify practices to better support consumers facing extreme weather events, while some of the consumer report recommendations echo those in its Building a More Resilient Australia report.

“Both reports outline the pressing need to better protect Australians from extreme weather risk, which will impact premiums for homeowners and businesses in at-risk communities,” a spokesperson said.

ICA stresses that state governments can reduce costs by removing stamp duty and other state taxes on insurance, which can add 10-40% to premiums depending on the jurisdiction.

“We know that households are under intense financial pressure because of the rising cost of living right now – that's why insurance affordability and availability is the number one concern for our industry,” the spokesperson said.