A UNSW academic says more work needs to be done to see how psychological factors will influence Australians as they make “increasingly difficult decisions” about home insurance. 

Professor Ben Newell says climate change will alter the frequency and intensity of extreme events, and "insurance against climate change” is going to have increasing costs.  

The university’s Institute for Climate Risk & Response could unite climate and behavioural science and economics to provide a “pathway for navigating the increasing climate risks across society and the ways to respond,” he says.  

“People will have to ask ‘how much of that cost am I willing to bear up front against the uncertainty of what is still communicated as a low probability event but that all the models are suggesting is going to get higher?’,” Mr Newell said. 

“More needs to be done to see how those psychological factors are really going to play out in helping people make what are increasingly difficult decisions.” 

More research would help both industry and consumers by helping bridge the gap between the perception and the reality of current and future climate risks. How those risks are communicated is key, he says, and at present probabilistic information is often not being clearly communicated. 

"Someone buying a property in the 100-year floodplain may easily believe that their home would only be impacted by flooding once every century. In reality, there is a one per cent chance of flooding in the 100-year floodplain, in any given year.  

“It becomes crucial … that people are really understanding what that means and not thinking that they have 99 years before they need to worry again. 

“Most importantly, these probabilities aggregate over years. This means that living in the 100-year floodplain exposes your property to a one in four chance of flooding over the lifetime of a typical 30-year mortgage.”  

Professor Newell says ultimately the onus is on the insurer to present it in a way that is understandable and communicated clearly, and also that the consumer should “question what exactly is being said as a way of understanding the risks you are exposed to and what you’re being covered for.”  

"If I'm making a decision as a consumer and the probabilities and the uncertainties around the risk of various climate events are difficult to understand, then the way risk is communicated is going to play a big role in how I make a cost-benefit trade-off,” he said.