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, new research shows.
A report* commissioned by a coalition of advocacy groups including the Climate Council, Financial Counselling Australia and CHOICE, found that two in five respondents to a national survey of home and contents insurance policyholders reported that they had been impacted by extreme weather events in the past five years.
“Yet our research found that the insurance market is failing to cover these events fairly and affordably”, said CHOICE CEO, Alan Kirkland.
“Many people are being forced to pay higher premiums, reduce their cover, or abandon insurance entirely.
“Home and contents insurance needs to be simpler, fairer and more affordable”, Kirkland suggested, adding that other solutions are also necessary, such as planning for relocation of communities in high-risk areas and funding for people to make their homes more resilient.
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 per cent 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. Nearly one in two (44 per cent) 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 the 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.
Kirkland predicts that 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”, he said.
According to Financial Counselling CEO Fiona Guthrie, 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”, 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 added that given the increasingly high cost of home insurance, particularly in disaster-prone areas, there needs 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”, she concluded.
*The report was commissioned by the Climate Council, Financial Counselling Australia, Financial Rights Legal Centre, CHOICE, and the Tenants’ Union of NSW, and 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.
