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Broken insurance market failing to protect people in climate crisis: New report

Urgent government action needed to make home and contents insurance accessible and affordable.

Last updated: 08 August 2023

New research from a coalition of advocacy groups has found the home and contents insurance market is failing to protect people against extreme weather events, with customers struggling to access and afford the insurance they need.

The report, commissioned by CHOICE, Climate Council, Financial Counselling Australia, Financial Rights Legal Centre, and the Tenants' Union of NSW, is based on a nationwide survey of home insurance policyholders, in depth interviews with people affected by extreme weather events, and interviews with key civil society groups.

"Two in five respondents to our national survey of home and contents insurance policyholders reported that they had been impacted by extreme weather events in the past five years, but our research found that the insurance market is failing to cover these events fairly and affordably. Many people are being forced to pay higher premiums, reduce their cover, or abandon insurance entirely," says CHOICE CEO, Alan Kirkland.

"We're calling for coordinated action by governments and the insurance industry to ensure that people are effectively protected against the effects of extreme weather events. Home and contents insurance needs to be simpler, fairer and more affordable. We also need solutions to the problems that can't be solved by insurance alone - such as planning for relocation of communities in high-risk areas and funding for people to make their homes more resilient," says Kirkland. 

The research revealed five key problems with the home and contents insurance market:

  • Complex product design: Home and contents policies are complex and difficult to compare across insurers, often leading to people being unintentionally underinsured. 
  • Unaffordable premiums: At their most recent renewal, 87% of policyholders have seen their premiums rise. Insurance unaffordability is worse in disaster-prone areas, and many households on low incomes have been priced out of the insurance market completely.
  • Inaccessible information on natural hazard risk: Finding information on the level of risk to your home is very difficult, and the information that is available is piecemeal and often inaccurate.
  • Actions by homeowners to mitigate risk are not being considered by insurers: 44% of policyholders would consider investing in measures to lower the cost of their premium but many insurers do not recognise these kinds of measures when pricing policies.
  • Housing in high-risk areas needs solutions beyond insurance: When homes are no longer insurable or safe to live in governments need to plan for other solutions, including relocation. 

The coalition behind this research is calling on the government to take the following steps to ensure people are protected from the risks associated with extreme weather events: 

  • Make home and contents insurance simpler, fairer and more affordable by standardising definitions and requiring insurers to proactively warn customers about underinsurance. 
  • Conduct an independent review of the affordability of home insurance - now and into the future. 
  • Trial home insurance subsidies in communities where insurance is unaffordable, particularly for people on low incomes. 
  • Provide funding to help people on low incomes to make their homes more resilient, and amend residential tenancy laws so landlords make rented properties more resilient to climate risks.
  • Create a database that provides easily understood, publicly available information on current and future climate risks to people's homes.
  • Adopt a national approach to planning for relocation of communities at high risk of natural disasters. 

"As the climate crisis worsens, more homes will be damaged or destroyed. Insurance can play an important role in helping people to recover and rebuild their lives but unless governments and the industry accept the need for sweeping change, fewer and fewer people will have the benefit of insurance when they most need it," says Kirkland. 

The full report, images and videos are available here.

Additional quotes:

Dr Tim Nelson, Climate Councillor and economist with the Climate Council

"In a world where extreme weather events are worsening, accessible and affordable insurance is critical. We need to assess areas where homes are no longer safe, and when needed, support communities in moving to places where they can be protected from the worst of extreme weather events. 

"At the same time as mitigating extreme weather events by reducing our emissions, it's critical that we adapt to the impact of them. Adaptation in this case looks like developing new approaches for calculating Australians' insurance premiums and ensuring their policies offer adequate protection.

"This report lays out clear, sensible recommendations for how insurance companies and our government can do that."

Fiona Guthrie, CEO Financial Counselling Australia

Financial Counselling CEO Fiona Guthrie said the report confirmed that the Australian insurance industry is not delivering when it comes to providing cover for people impacted by weather events.

"Only last week, the Assistant Treasurer, Stephen Jones, described insurance as an essential item that people must have," Ms Guthrie said. "We agree, of course, but we are now seeing homeowners from several states, from both low- and middle-income households, who simply can't afford property insurance because, in many cases, policies are costing tens of thousands of dollars."

Ms Guthrie said given the increasingly high cost of home insurance, particularly in disaster-prone areas, there needed to be significant decisions made about how and where people live in the future.

"And that decision should involve not just the home-owner, but regulators, insurers, banks and governments. We need to openly canvass all the options in order to bring the cost of insurance down."

Karen Cox, CEO Financial Rights Legal Centre

"At Financial Rights we have seen how insurance and the law fail some of the most vulnerable Australians experiencing bushfire, floods, storm and hail. Governments and the insurance sector need to work together with consumer groups to urgently address these issues"

"People on low incomes are impacted the worst by extreme weather events because they don't have the same financial means to recover or adapt to a changing climate. On top of that, low-cost housing, including rental properties, tends to be in higher-risk areas, and built to less resilient standards." 

"It has been particularly concerning to see how many people were left without flood cover after the last few years of record rainfall, due to inability to afford the premiums. Many people are being left behind by rising insurance premiums in the face of increasing climate related risk."

Leo Patterson Ross, CEO Tenants' Union NSW

"People who rent are uniquely affected by extreme weather events. Many (if not most) people who rent do not have any form of contents insurance. Renters also tend to live in more disaster-prone regions and in less resilient housing. People who rent deserve to live in resilient, safe and healthy homes. They should not be forced to choose between uprooting their families and leaving their communities or remaining in uninhabitable rental properties after an extreme weather event."

 "There are important changes that State and the Federal Governments could make to ensure landlords take reasonable steps to make rented homes resilient to climate risks and provide emergency accommodation if a rental property needs repairs after a disaster."

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Stock images: Getty, unless otherwise stated.