Home insurance and climate change

Premiums could rise by as much as 92% in high-risk areas.
 
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01.Homeowners face information shortfall

Home insurance premiums will rise with climate change

CHOICE has partnered with the Climate Institute in the release of a report that calls for homeowners to have better access to natural disaster risk information. 

The report, Buyer-Beware: Home Insurance, Extreme Weather and Climate Change, was prepared by Climate Risk Ltd for the Climate Institute and warns that home insurance premiums for at-risk homes could rise by as much as 92% by 2050 as climate change continues to trigger extreme weather events.  

As a result, property values in some areas could drop by up to 20% within the term of a mortgage, the research shows. 

“This report warns homebuyers that they need to consider extreme weather risk and climate change very seriously. In high-risk locations, some home insurance policies are already unaffordable and there are insurers who won’t even offer policies at all,” said Climate Institute CEO John Connor.

He added that homeowners and buyers “are often unwittingly caught between failures by governments and the marketplace to reveal information about the current risks and how they are projected to worsen.”

“One serious problem is that most homebuyers won’t even know that they are buying a high risk home, so it is very much a ‘buyer beware’ property market”, said the report’s lead author, Dr Karl Mallon. 

CHOICE uncovers iffy assessments

CHOICE shares these concerns. “It is increasingly important for consumers to factor in weather risk before purchasing a home, because if you buy in a high-risk area without knowing it, you may find that you are unable to afford insurance,” said CHOICE CEO, Alan Kirkland.

“If you already own in a high-risk area, you need to be careful about the risks of underinsurance – otherwise, you may find that your insurance payout is not enough to allow you to rebuild after a major event. We think that the insurance industry can do more to inform home owners about climate risk and how it impacts on premiums.”

A CHOICE investigation last year found widespread two- and three-fold home insurance premium increases across the industry, often with the addition of mandatory flood cover. Homeowners – most of whom disputed that they were in flood-prone areas – told CHOICE they were not provided with the risk assessment information that led to the price hikes. 

The Climate Institute research involved surveying insurance policy prices and availability around Australia and applying current climate change projections to forecast future policy costs.

Key findings of the report

  • The cost of premiums in high weather-risk locations is up to 10 times that of a typical policy at locations at lower risk. The highest risk locations are in Northern Australia and in the middle of some of our largest cities.

  • In half of the tested locations considered high-risk, at least one insurer — including some of the country’s biggest firms — declined to make online quotes available at all. 

  • Underinsured homeowners who suffer a major loss may receive payouts amounting to as little as half the sum required to replace their home, because new homes will have to be built to much higher standards to withstand extreme weather.
     
  • Many insurance policies do not cover for local extreme weather risks such as coastal inundation, erosion, land-slip, and foundation damage. Yet these are some of the impacts that climate change is making worse. 

  • Based on the high-end of climate projections, an average home insurance premium could rise by 92% over the life of a standard 30-year mortgage; while the impact of climate change on insurability could lead to property value reductions of 20% or more over the life of a standard 30-year mortgage.
A March 2014 report on climate impacts and vulnerability by the Intergovernmental Panel on Climate Change found that the lessons of past extreme weather events have generally not been taken on board by governments and that little is being done to discourage home building in high-risk areas. 

 
 

 

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