There has been a troubling increase in home insurance affordability stress levels in the country according to the recent report by Actuaries Institute. According to the “Home Insurance Affordability and Home Loans at Risk Report” by Finity actuaries, there has been a rise over the past year of 30 percent in the number of households struggling with insurance costs sitting at 1.6 million households.
Increasing Costs and Rising Stress
These affected households, on average, as reported, spend 9.6 weeks of their gross income on house insurance—far higher than the proportion spent by the average Australian household. The proportion of households in significant affordability stress—spending more than one month’s gross income on insurance premiums—has increased to 15% as of March 2024 from 12% the prior year.
Sharanjit Paddam, the report’s lead author, told of his concern about the increasing problem: “While insurance remains generally affordable for 85% of households, it’s alarming that 1.6 million households are now struggling with insurance costs, compared to 1.24 million a year ago.” He said this surge is as a result of insurance premiums going up faster than wage growth, aided by the increase in natural disasters occurring because of climate change.
Regional Disparities and Broader Implications
The report shows areas where insurance affordability stress is highest. At the same time, the massive growth in population in Southeast Queensland adds to a large group of households under extreme affordability pressures. However, Southwest Queensland, the Northern Rivers region in NSW, regional Western Australia, and the entire Northern Territory are among the most affected regions. These areas have about half of their populations with premiums above one month’s income, with high risks from floods and cyclones.
The report also considers implications for the broader $2.3 trillion home loan market in Australia, estimating that 5 percent of mortgage holders are under insurance affordability stress—equating to about 180,000 households, with an average home insurance premium per annum of $5,216, which is more than double the national average of $2,124.
Paddam warned: “These 180,000 households represent about $57 billion worth of home loans. “If natural disasters render their homes uninhabitable and they have no or inadequate insurance cover, the financial impacts will be devastating for them. This is not solely an insurer issue but also impacts lenders, regulators, and governments.”
SOS for Solutions
The Actuaries Institute said it called for the cooperation of different stakeholders to find solutions to the escalating insurance affordability crisis. It calls for the establishment of such sustainable finance measures as resilience loans and bonds to help households overcome financial stress. For the CEO, Elayne Grace, it is sustainable finance that can be expected in the solution: “We need to manage the risks associated with climate change.”. If sustainable finance is to fulfill its promise, then it must be part of the solution by charting a course forward for households, investors, insurers, and lenders while simultaneously allowing the government to remain focused on the most vulnerable communities and requisite local measures.
With the climate risks still running high, the need for holistic and long-term solutions becomes more pressing than ever. In the Actuaries Institute report, insurance affordability is put at the forefront as an essential action in guaranteeing Australian households’ financial stability and resilience.
(Source:- ESG NEWS)