"Affordability stressed" households rise from 12% to 15% as insurance costs reach 9.6 weeks of income
In the past year, Australian households facing challenges with home insurance affordability have surged by 30% to 1.6 million, driven by significant hikes in insurance premiums. This concerning trend highlights a growing issue for insurers, brokers, and businesses, emphasising the need for urgent attention and innovative solutions in the insurance sector.
A recent study by the Actuaries Institute found that these households now spend approximately 9.6 weeks of their gross annual income on home insurance, a stark increase that positions them seven times above the national average. This escalation in costs has pushed the proportion of households considered "affordability stressed"—those whose insurance premiums exceed one month's gross income—from 12% to 15% over the last year.
This increase in premiums, noted to be around 9% on average, has been particularly harsh for properties at greatest risk, such as those prone to floods and cyclones, where premiums have soared by more than 30%. Sharanjit Paddam (pictured), the report’s lead author, voiced concerns, stating, "While insurance remains generally affordable for 85% of households, the rapid increase in premiums, outstripping wage growth, is worrying. This trend is likely to continue due to the increasing risks of natural disasters associated with climate change."
The analysis also highlights specific regions under severe strain. Southeast Queensland tops the list in the number of households facing extreme affordability issues, followed by areas like southwest Queensland, NSW’s Northern Rivers, regional Western Australia, and the Northern Territory. In these high-risk zones, up to half of all households grapple with insurance costs exceeding their monthly income.
The report also sheds light on potential repercussions for Australia's $2.3 trillion home loan market, noting that around 5% of mortgage-holding households are under similar affordability stress, with their average annual premium at $5,216 – more than double the average. The financial implications are significant, with these 180,000 households representing about $57 billion in home loans. Paddam warns of the broader risks to financial stability, noting, "If a natural disaster strikes and these households are uninsured or underinsured, the financial consequences could be severe, impacting not only insurance but also lending markets and the broader economy."
Elayne Grace, CEO of the Actuaries Institute, stresses the importance of collaborative efforts in sustainable finance to mitigate these risks. By integrating resilience loans and bonds, stakeholders can better manage the impacts of climate change, supporting vulnerable households and ensuring community-level resilience.
This growing concern demands a unified approach from governments, insurers, lenders, and investors to foster sustainable solutions and alleviate the pressure on households at risk. As we navigate these challenges, all stakeholders must engage actively in dialogue and innovation.
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