Rising Insurance Costs: A Growing Concern for Homeowners in High-Risk Areas
As climate change intensifies, homeowners in Australia are grappling with soaring insurance premiums, particularly in regions prone to natural disasters. The case of Emma Jordan, a resident of Echuca, highlights the challenges many face when trying to secure adequate coverage against flooding-a risk that has become alarmingly prevalent.
The Dilemma of Underinsurance
Jordan, who purchased her home in Echuca in 2022, reflects on her decision to underinsure her property. “I think I’m probably leaning towards just underinsuring because, if I could afford the $10,000, I would just do it for the peace of mind, but it’s not an affordable option,” she stated. This sentiment resonates with many homeowners who find themselves in similar predicaments, forced to choose between financial security and affordability.
Honey Insurance, the company providing Jordan’s coverage, acknowledged the ongoing challenges in the insurance landscape. “At times, changes will be made to where it offers insurance based on the latest information and data available. If this occurs, customers will be advised ahead of their policy renewal to allow them time to make alternative insurance arrangements,” a spokesperson said. This proactive approach, however, does little to alleviate the immediate financial burden faced by many.
The Impact of Recent Flooding
The flooding that struck Echuca in 2022 was unprecedented, with the Murray River reaching its highest levels since 1916. Jordan admits that the risk of flooding was a last-minute consideration during her home purchase. “I don’t think anyone anticipates to see flooding of that kind,” she remarked, underscoring the unpredictability of natural disasters and their impact on insurance decisions.
Consumer advocates and industry experts are increasingly vocal about the affordability crisis in insurance, particularly in areas vulnerable to flooding. The Consumer Action Law Centre, which supported Jordan, pointed out that the 2022 floods exposed significant flaws in how insurance claims are managed. The Australian Securities and Investments Commission (ASIC) has also indicated that insurers need to improve their oversight of claims processes, particularly regarding the expertise of builders and repairers involved in recovery efforts.
Rising Premiums and Regional Disparities
According to a recent analysis by Canstar, the average home and contents insurance premium has surged by 14% over the past year. New South Wales experienced the most significant increase, with an average rise of 18%, followed closely by Victoria, South Australia, and the Northern Territory. Queensland saw a 16% increase, reflecting a troubling trend across the nation.
The National Climate Risk Assessment warns that as climate impacts worsen, insurance affordability in high-risk regions is likely to become an even more pressing issue. “Households in these regions are likely to face further increases in insurance premiums in the future, decreasing affordability of full insurance and leading to properties at risk of being underinsured,” the report stated.
The Broader Implications of Underinsurance
Kylie Macfarlane, deputy chief executive of the Insurance Council of Australia, highlighted that approximately 300,000 properties in New South Wales, Victoria, and Queensland face a “severe to extreme” annual risk of flooding. Many homeowners in these areas are opting out of flood coverage due to skyrocketing costs. “They are making decisions not to have it because the price has become very high,” Macfarlane noted.
The financial implications of underinsurance are significant. Over the past five years, Australia has incurred $22.5 billion in insured losses, a staggering 67% increase compared to the previous decade. Flooding has emerged as the primary driver of these escalating costs, raising concerns about the long-term viability of homeownership in high-risk areas.
The Call for Infrastructure Investment
In response to these challenges, the insurance industry is advocating for increased public investment in infrastructure, such as flood levees and disaster-resilient building practices. However, these initiatives often take time to implement and do not provide immediate relief for homeowners facing rising premiums.
Jordan’s situation exemplifies the difficult choices many Australians must make. While she acknowledges that being underinsured is not ideal, it appears to be her most feasible option at this time. “I hope for some kind of improvement,” she said, reflecting a sentiment shared by many in her community.
Conclusion
The rising costs of insurance in high-risk areas like Echuca are emblematic of a broader crisis exacerbated by climate change. As homeowners grapple with the dual challenges of affordability and adequate coverage, the need for systemic change in the insurance industry becomes increasingly urgent. Without significant reforms and investments in infrastructure, many Australians may find themselves caught in a cycle of underinsurance, leaving them vulnerable to the very disasters they seek to protect against.
