Yahoo Finance Aussie homes hit with a $2,000 a year threat, millions of people affected
Home insurance premiums are increasingly becoming unaffordable for vulnerable Australians, a new report revealed.
Actuaries Institute (AI) found around 1 million households are paying more than four weeks of their annual gross household income in home insurance premiums. The national average is just 1.1 weeks of income.
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Concentrated around the NSW, Queensland and the Northern Territory, vulnerable Australians are facing what AI calls “extreme home insurance affordability pressure”.
Of households paying an annual premium of more than $2,000, over half earn a gross income of less than $65,000.
Why low income households are paying higher premiums
Report author Sharanjit Paddam told Yahoo Finance some households struggle to pay for insurance solely due to their low incomes, but there’s another major factor impacting affordability.
It’s something the team hypothesised but “dreaded” proving - high-risk areas which attract expensive premiums are also low income areas.
That’s because people struggling with finances can only afford cheaper housing and that tends to be concentrated on the city outskirts and rural areas.
“At the fringes of cities, you're likely to be exposed to bushfire and also in floodplains,” Paddam said.
“Ipswich west of Brisbane is a cheaper suburb and that’s in a floodplain… and Western Sydney we’ve known from recent times is a big flood risk.
“There's always been this concern that the way the system works is that people will move to cheaper housing and it's cheaper because it's higher risk, and that’s coming out in the analysis we’ve done.”
Climate change set to escalate insurance pressure
Worryingly home insurance will become less affordable for vulnerable households due to climate change, with premiums likely to rise between 14 and 20 per cent due to risk of cyclone, bushfire, and flood.
Paddam argued the Federal Government needs to initiate discussions on planned retreat from high-risk regions including parts of flood-affected Lismore before rebuilding begins.
Because of the emotion involved in relocation, he believes the framework should be consultative, with decisions ultimately made by local communities.
“It's probably an expanding role for local councils to consult with residents where there are known (high-risk) areas and to develop plans, rather than top-down type decision making,” he said.
“What can be top-down is the framework.”
Also in need of attention are vulnerable household financial support, levee construction, and the changing of building standards, all of which will take years to develop and implement.
Paddam argues the conversation should have “started yesterday”, so we “need to get started as soon as possible”.
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