Home insurance premiums have jumped 28% in the past year, the biggest gain in two decades, while high risk properties, such as those in flood-prone areas have seen increases of up to 50%, the Actuaries Institute says. 

The group has released two reports today, one updating affordability issues and the other outlining policy measures for governments, insurers and others to consider amid concerns that many households may abandon insurance. 

“Flood insurance affordability pressures are acute and there is a need to address this problem urgently,” CEO Elayne Grace said. “We need to tackle this problem holistically, with a well-designed suite of policy measures to achieve long-term benefits for all Australians.”  

The Home Insurance Affordability Update follows a Green Paper released last year, while a second report, Funding for Flood Costs, Affordability, Availability and Public Policy Options, looks at riverine flood insurance and potential responses. 

The median home insurance premiums rose 28% to $1894 in the year to March 31, while the proportion of stressed households – which spend more than a month’s worth of their gross annual income on home cover – rose to 12% from 10%.  

The research estimates that 1.24 million households, or nearly one in eight, are facing home insurance affordability stress, up from one million a year ago. 

An estimated 171,000 households were said to be enduring extreme affordability pressure and with riverine flood risk contributing more than half of their premiums. 

The researchers estimate that the total flood premium for these 171,000 households, if they were fully insured, to be $1.5 billion per annum, or $8800 on average per household.  

“At the moment, $1.5 billion is the size of the problem,” co-author Sharanjit Paddam said. “That is our estimate of flood insurance that could already be considered unaffordable.”  

Mr Paddam and co-authors Calise Lui and Saroop Philip, from Finity Consulting’s Climate Analytics Practice, warn that affordability pressures are likely to continue to worsen due to climate change. 

The analysis also shows that under the government-backed reinsurance pool, cyclone premiums including wind and storm surge are expected to reduce by $368 million, or 26% across Australia. Nearly 600,000 high-risk households are expected to receive an average premium saving of $1350 under the Pool  

The second report focusing on riverine flood says governments should consider cost reduction and cost sharing measures that could provide short-medium term relief for stressed households. 

The measures include removing state-based taxes on insurance and introducing means-tested targeted subsidies. If a pool is considered, it would need to be designed differently to the cyclone reinsurance pool, and should include risk reduction as a key objective, the report says. 

The report backs stronger building codes and land use planning rules and better collection and use of data to improve risk management and inform the public about a property’s flood risk. 

“Risk reduction is the only way ultimately to address affordability stress by lowering the underlying risk and therefore costs in a sustainable way, especially when we factor in climate change,” report lead author and Swiss Re Head of Portfolio Management APAC Evelyn Chow says. 

Insurance Council of Australia CEO Andrew Hall says the reports are further proof of the urgency of reducing risk for communities exposed to extreme weather through greater government investment and action. 

“State governments in particular can provide immediate relief on insurance costs by reforming their insurance taxes,” he said. 

“With responsibility for land use planning, state governments must also urgently change our approach to what we build and where we build it so future homeowners are not left stranded without insurance cover.” 

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