Home insurance affordability worsens across Australia

Affordability stress has surged by 30% over the past year.

Home insurance affordability has worsened in Australia, with a significant increase in the number of households experiencing financial strain due to rising premiums. 

According to a report by the Actuaries Institute, the number of households under home insurance affordability stress has surged by 30% over the past year, now affecting 1.6 million households. These households, on average, spend 9.6 weeks of their gross income on home insurance, a figure that is seven times higher than the national average.

The report indicates that 15% of households are now categorised as "affordability stressed," up from 12% the previous year. 

This situation has been exacerbated by a 9% increase in median insurance premiums. Homes situated in high-risk areas for floods and cyclones, which face the top 5% of premiums, have experienced an even steeper rise of over 30%.

Sharanjit Paddam, the report's lead author, highlighted that whilst insurance remains generally affordable for 85% of households, the growing number of those struggling to afford coverage is alarming. 

The affordability crisis is partly due to insurance premium increases outpacing wage growth, a trend expected to continue with the escalating risks of climate-related natural disasters.

Southeast Queensland leads in the number of households facing extreme affordability pressure, reflecting its rapid population growth. 

However, regions such as southwest Queensland, NSW’s Northern Rivers, regional Western Australia, and the Northern Territory are the hardest hit, with half of the households in these areas spending more than a month’s income on insurance due to high flood and cyclone risks.

The report also explores the impact on Australia’s $2.3t home loan market, revealing that 5% of households with mortgages are under home insurance affordability stress. 

These 180,000 households pay an average annual premium of $5,216, which is more than double the national average of $2,124. This situation poses potential risks not only for these households but also for lenders and the broader financial system, especially if these homes are damaged in natural disasters and are either uninsured or underinsured.