Increasing bushfire risks are raising the potential for policyholders to become underinsured, while also elevating concerns about affordability and availability of cover, a UNSW insurance expert says. 

“Bushfires are becoming more prevalent, Professor Michael Sherris from the School of Risk and Actuarial Studies says. “With increased temperatures, this is something that is going to be more significant over coming years.” 

Professor Sherris says building code revisions in response to the Black Summer bushfires mean homes may need to be rebuilt to higher standards if they are burned down, and people should be aware that higher premiums may be required to cover increased costs. 

UNSW says premiums reflect the bushfire risk for the property, usually based on the bushfire attack level (BAL).

“As bushfires are becoming more prevalent, the BAL for properties is becoming higher, which results in higher home insurance costs,” he said. This is a factor that insurance companies use to assess home insurance.”  

At the same time, a major challenge is that some people are choosing not to have insurance because the expense is considered too high, particularly with the current cost-of-living crisis. 

“It’s critical for homeowners to ensure they have home insurance that protects them from bushfire damage especially if they live in a high-risk area,” Professor Sherris says. “Homeowners may think that their property will be undamaged but may not be aware of the expected outlook this upcoming season.”  

The Australian Disaster Resilience Knowledge Hub stated that 2488 homes were burnt down in the 2020 Black Summer bushfires and more than 2000 homes were lost in the 2009 Victorian bushfires. 

The AFAC seasonal outlook says the upcoming season in NSW is expected to see an increased risk compared to previous years.  

UNSW has also pointed to experience in the US, where insurers have been backing away from regions prone to natural disasters. 

“What we have seen in the US, for example, is that insurance companies have pulled out of providing insurance of areas where bushfire or other natural disaster risk is too high as it would be too large of a financial uncertainty to cover certain areas,” Professor Sherris said.   

“It’s a worrying factor that may also become prevalent in Australia. There is an unexpected void as to what will happen if insurance companies pull out of high-risk areas.”