About one in 25 Australian homes is at risk of becoming effectively uninsurable by 2030, according to a new Climate Council report based on analysis by a climate risk assessment group.
- Forecasts are based on a business-as-usual emissions scenario
- Queensland followed by New South Wales is expected to be hardest hit
- In the worst affected areas, more than a quarter of homes may have unaffordable insurance premiums
That number rises to more than one in 10 households for some of the worst affected areas, including parts of Brisbane, the Gold Coast, Greater Shepparton, Ballina and Port Adelaide.
The report’s authors warn that Australia is heading for an “insurability crisis” as climate change increases the risk of worse extreme weather conditions, causing insurance premiums to “skyrocket”.
“We’re talking about half a million properties, that’s not negligible,” said Nicki Hutley, co-author of the report and an economist at the Climate Council.
Of the top 10 affected voters, most (80%) are due to growing insurance risk posed by river flooding, according to the ‘Uninsurable Nation’ report, released today.
Bushfires and surface water flooding, or surface flooding not associated with swelling rivers, also feature prominently in driving up insurance premiums in coming years.
When a property becomes “effectively uninsurable,” it means insurance premiums are so high they are unaffordable for the average homeowner, according to Karl Mallon of Climate Valuation, who provided the data to the Climate Council.
Once there is a greater than 1% chance in any given year of a property suffering major damage from an extreme weather event, that’s when the bounties kick in to increase, said Dr. Mallon.
“Once you go over that threshold, the costs usually start to rise. So instead of paying $1,000 a year, you get $3,000 a year and it goes up – we’ve seen bonuses of $30,000 a year “, did he declare.
“Essentially, we remain of the view that once you get past those levels, many people won’t be able to afford that insurance.”
Queensland is expected to be the hardest hit state, with up to 193,000 properties (6.5% of the total number) considered to be at high risk of being uninsurable by 2030, followed by New South Wales with over 148,000 properties.
Conclusions were based on high emissions and business-as-usual prospects for climate change. Dr Mallon said what banks and insurance companies choose to base their premiums on varies, but they are required to consider status quo forecasts.
“The kind of guidance coming from regulators in place in Australia and around the world, they almost all insist that every company has an opinion on high emissions scenarios,” he said.
“Unfortunately, that’s where we follow, that’s along those pathways.”
At this point, the high emissions scenario looks likely through 2030, Ms Hutley said.
“That’s actually what we face if nothing happens. [and] with the 2030 scenario, most [warming] is already cooked.”
The report also includes an interactive map with moderate and optimal emissions scenarios, where users can explore the results up to 2100.
“Even in the moderate scenario, things still don’t look so good,” Ms Hutley said.
Financial aid needed to build resilience in rural and regional towns
In the federal constituency of Nicholls in Victoria, which includes Shepparton, Moira, Campaspe, Mitchell and parts of Strathbogie Shire, up to one in four homes are expected to move into the “high risk” insurance category by 2030.
Strathbogie Mayor Laura Binks said her community was “already living through the reality of climate change right now”, but she was still surprised at how risky the Strathbogie Shire could become.
“Seeing this report, yes, it’s the high emissions outlook and the worst-case scenario for our community, but it’s really alarming and startling,” Councilor Binks said.
In 2021 Strathbogie became the 100th council in Australia to declare a climate emergency. Councilor Binks said the report reinforced the need to reduce emissions.
“We would be absolutely delighted [climate] measures at the state and federal levels that scientists tell us we need to take,” she said.
Councilor Binks said there were already a number of climate-positive projects in Strathbogie County, including a microgrid at Euroa and carbon-neutral wineries, but that building resilience against future extreme weather events posed a greater challenge.
“It’s definitely part of the work that our operations and engineering teams are doing, looking at ways to build resilience,” she said.
“[But] the challenge we have at Strathbogie is that we have a large square footage but a fairly small rate base. »
This means that the council cannot locally generate the revenue needed to invest in expensive infrastructure projects.
“What we would like to see is more meaningful support and partnership from state governments and the federal government,” Councilman Binks said.
“We don’t want rural and regional areas to be left behind.”
The next five years ‘will not be a smooth curve’
Climate Valuation calculated the data used in the report with a program that inputs variables such as flood mapping, elevation and forest cover, combined with global climate models, to assess the “upper range” of risks posed to every address in Australia.
Assuming an average home cost of $314,000 (it was $320,000 last year according to the ABS), they then calculated what’s called the MVAR, or maximum value at risk, for each property.
Homes that scored an MVAR of 1%, which means extreme weather conditions would likely cost them an average of 1% of their property value each year — $3,140 based on the assumed average cost of the home — were considered to be at “high risk” of effectively becoming uninsurable.
Because extreme weather events occur with some degree of random probability, increases in insurance premiums can be difficult to predict.
However, Dr Mallon says that in general, insurance companies and banks are underestimating the growing risk of climate change.
“We think there are going to be some bumpy corrections.”
What people need to understand, he said, is that while a 1 or 2 percent chance of an extreme weather event may seem low to the homeowner, to an insurer it could be an unacceptable risk and cause for premium increases.
“Everyone asks, ‘What is the statistical probability of an extreme weather event?'” Dr Mallon said.
“If I owned a home, I would worry more about what the insurers and the banks are going to do than about the possibility of something happening.”
A spokesperson for the Insurance Council of Australia said climate change is “aggravating extreme weather events, which has implications for the affordability and availability of insurance”.
“At this time, no area of Australia is uninsurable, although there are some places where there are clearly affordability and availability issues,” the spokesperson said.
“Assurance [assesses] risk, and that means that for those in areas prone to flooding or cyclones, coverage can be expensive.
“At the end of February, the ICA published our election policy paper, Building a more resilient Australia, which states that the next federal government must increase its investment to $200 million a year and that this must be matched by states and territories, pursuant to a 2014 recommendation of the Productivity Commission.”
The policy document outlines spending areas the council deems to be priorities, including funding for flood levees for regional towns.