A million Australian households spend more than a month’s gross income on home insurance and the Actuaries Institute says state stamp duty and levies should be scrapped in favour of “more equitable and efficient” sources of revenue.

A Finity Consulting report commissioned by the Actuaries Institute says the median premium of the million households categorised as “vulnerable and experiencing extreme home insurance affordability pressure” was 7.4 weeks, or 14% of annual gross income.

For households with an annual home insurance premium above $2000, half earn less than $65,000 a year.

The report says state tax charges contribute $2.1 billion to annual home insurance premiums, and the removal of all tax charges would cut the 7.4 weeks median for vulnerable households to 6.6 weeks.

It details how climate change is widening a gap in home insurance affordability and recommends a “managed retreat” from hazard risk-prone areas, as well as more levees, floodways and sea walls, better land use and planning, and changes to building codes to allow for the impact of climate change.

The Insurance Council of Australia (ICA) says it’s important the report is taken seriously.

“The ICA strongly supports the Actuaries Institute’s calls for greater investment in resilience measures to address insurance affordability, as well as for strong collaboration between policymakers to strengthen community infrastructure,” CEO Andrew Hall said today.

Vulnerable households are likely to be older, renting, in lower socio-economic areas and have lower savings. They have low incomes and high insurance costs and are typically in the areas most affected by natural disasters, concentrated in the NT, Queensland and northern NSW.

Australia-wide, the median home insurance premium is currently 1.1 weeks salary or 2% of annual income, which the ICA says “demonstrates that for most, insurance is an affordable and important product”.

However, the report says Australians living in parts of northern Queensland and northern WA pay premiums over $3000 - compared with a median across Australia of $1534 - and it recommends insurance subsidies be introduced for low-income households as a supplement to the cyclone reinsurance pool.

Finity Climate & ESG Risk Actuary Sharanjit Paddam says by acting quickly, policymakers can “begin to address home insurance premium affordability and the socioeconomic inequities of climate change.”

“Policy changes will require strong collaboration between multiple parties, including local, state and Commonwealth governments, insurers and banks, builders and developers, and First Nation Australians,” he said, noting that managed retreat from hazard-prone areas was done in Queensland’s Grantham in 2013 and is underway in New Zealand in some areas damaged by the Christchurch earthquake.

“In areas where mitigation and adaptation systems cannot adequately manage the losses suffered from persistent severe weather events, communities may need to consider relocating some or all of its people and assets, especially in cases where home insurance premiums become unaffordable,” the report said.

Under a low emissions scenario of a less than 2 degrees celsius temperature rise, home insurance affordability pressure will increase by 14% for vulnerable households, driven by significant increases in cyclone, bushfire and flood risk, it said.

Cyclone risk would add $197 million to home insurance premiums in Australia by 2050, flood $49 million, storm $38 million and bushfire $25 million, the research says, while infrastructure resilience measures could yield savings of up to 10 times the initial investment.

The report is based on data from 533 local government areas across Australia. Income spent on home insurance by state and territory was as follows: NSW and Queensland 1.4 weeks, NT 1.3, Victoria and Tasmania 0.9, SA and WA 0.8, ACT 0.7.

The ICA has called for a doubling of federal funding to $200 million a year in household retrofits and community protection projects, matched by states and territories. It also wants better land use planning, resilience as a standard in the building code, and the scrapping of state taxes and charges on insurance.

“The most effective use of finite government resources will be to assist the most vulnerable households expected to experience the greatest pressures from the changing climate,” Actuaries Institute CEO Elayne Grace said.

A webinar on the impact of climate change on insurance premiums will be held on Monday. Register here.