About one in 25 Australian homes are at high risk of becoming effectively uninsurable by 2030, according to a new Climate Council report based on analysis by a climate risk assessment group.
These are the key points
- The forecasts are made based on an as-usual business scenario.
- New South Wales, Queensland and New South Wales are likely to be the hardest affected.
- In the worst-hit areas, over a quarter of houses could have insurance premiums that are prohibitively high.
That number rises to more than one in 10 homes for some of the most affected regions, including parts of Brisbane, the Gold Coast, Greater Shepparton, Ballina and Port Adelaide.
The report’s authors warn that Australia is facing an “insurability crisis” due to climate change, which increases the risk of extreme weather events and leads to higher insurance premiums.
“We’re talking about half a million properties — it’s not insignificant,” said Nicki Hutley, report co-author and economist with the Climate Council.
Most (80%) of the top 10 impacted electorates are due to increasing insurance risks posed by riverine floods. According to the report “Uninsurable Nation”The following was published today:
Insurance premiums will rise in the future due to increased bushfire and flood rates.
Karl Mallon, Climate Valuation, who provided the data to the Climate Council, stated that when a property is “effectively insurable”, it means that the insurance premiums are too high to afford.
Once there is more than a 1 per cent chance in any given year of a property incurring major damage from an extreme weather event, that’s when premiums start to escalate, Dr Mallon said.
“Once you exceed that threshold, typically the costs start to increase; so instead of paying $1,000 a year, you get $3,000 a year and it climbs — we’ve seen premiums of $30,000 a year,” he said.
“Essentially, we stand by the view that once you get above these levels, there will be many people who cannot afford this insurance.”
Queensland is projected to be the hardest-hit state, with up to 193,000 properties (6.5 per cent of the total number) deemed to be at high risk of uninsurability by 2030, followed by New South Wales with more than 148,000 properties.
The findings were based on a business-as-usual, high emissions outlook for climate change. Dr Mallon stated that the basis of premiums for banks and insurance companies varies, but they must factor in business-as usual forecasts.
He stated that the guidance from the governing regulatory authorities in Australia and around world almost all insists on every company having a view about high-emission scenarios.
“Unfortunately, that is where we are tracking, it’s along those pathways.”
At this stage, the high emissions scenario is looking likely through to 2030, Ms Hutley said.
“This is the reality we face if nothing happens.” [and]Most of that scenario is possible with the 2030 scenario [warming]It is already baked in.”
The report also includes An interactive map showing the best-case and moderate emissions scenariosYou can explore the outcomes of your search through to 2100.
“Even under the moderate scenario, things still don’t look that great,” Ms Hutley said.
Financial assistance needed to build resilience within rural and regional communities
As many as four out of every four houses in Victoria’s federal electorate, Nicholls (which includes Shepparton. Moira. Campaspe. Mitchell and parts of Strathbogie Schire), are expected to be in the insurance “high risk” category by 2030.
Strathbogie mayor Laura Binks said her community was “already living the reality of climate change right now”, but she was still surprised to see how at-risk the Strathbogie Shire could become.
“Seeing this report, yes it’s high emissions, worst case scenario outlook for our community but it’s really alarming, and arresting,” Councillor Binks stated.
Strathbogie was the 100th council to declare a climate emergency in Australia in 2021. Councillor Binks said this report had reinforced the need to get emissions down.
“We are open to meaningful conversations.” [climate]She stated that we must take the actions at the federal and state levels that scientists have advised us to,” she said.
Councillor Binks stated that there are already many climate-positive projects within the Strathbogie Schire, including a microgrid at Euroa, and carbon-neutral winesries. However, building resilience against future extreme weather events was a greater challenge.
She said, “It’s certainly part of the work that both our operations and engineering teams do, is looking at how we can build resilience.”
“[But]Strathbogie’s challenge is that we have a large rate base but a large area.
This means that the council cannot generate enough revenue locally to finance expensive infrastructure projects.
“What we’d love to see is more meaningful support and partnering from state and federal governments,” Councillor Binks said.
“We don’t want rural and regional areas to be left behind.”
Next five years will not be a smooth ride
Climate Valuation used a program to calculate the data used to create the report. It input variables flood mapping, elevation, forest cover, and global climate models to assess the “upper-range” of risks that are posed to every address within Australia.
They assumed that a house would cost $314,000 on average (it was $320,000 last fiscal year according to ABS), and then calculated the MVAR, or maximum risk value, for each property.
Houses that scored an MVAR of 1 per cent, which means that extreme weather was likely to cost them on average 1 per cent of the value of their property each year — $3,140 based on the assumed average house cost — were deemed to be at “high risk” of becoming effectively uninsurable.
Extreme weather events can occur with a degree random probability. This makes it difficult to predict how insurance premiums will rise.
However, Dr Mallon says that, in general, insurance companies and banks have been underestimating the growing risk of climate change.
“We believe there will be some bumpy corrections.”
What people need to understand, he said, is that while a 1 or 2 per cent chance of an extreme weather event might sound low to the property owner, to an insurer, that could be an unacceptable risk and cause for boosting premiums.
“Everyone is asking, “What is the statistical probability of extreme weather events?” Dr Mallon said.
“If I was a homeowner, I’d be more worried about what banks and insurance companies are going to do than the possibility of an unfortunate event.”
A spokesperson for the Insurance Council of Australia says climate change is “worsening extreme weather events, which has implications for affordability and availability of insurance”.
“At present there is no area of Australia that is uninsurable, although there are some locations where there are clearly affordability and availability concerns,” the spokesperson said.
“Insurance [assesses]Risk can be high, which means that coverage for flood-prone and cyclone-prone areas can be expensive.
“In February, ICA published our election policy document. Building a More Resilient AustraliaAccording to the 2014 Productivity Commission recommendation, the Federal Government must invest $200 million more annually in the future. This must be matched by the States and Territories.
The policy document lists the priority areas for spending, including funding flood lesvees for regional communities.