11 hours Ago By Caitlin Fitzsimmons
The accelerating risk of climate disasters, including floods, bushfires and storms, means Sydneysiders in some parts of the city are paying over three times more for home insurance than others, as insurance experts and politicians call for a greater national investment in climate resilience. Industry figures suggest home owners in the Hawkesbury region are paying an average of $7033 a year for residential building insurance, though some individuals whose properties have elevated flood risk could be paying as much as $30,000. The average premium across Greater Sydney is $3200 a year, 66 per cent higher than in 2020, according to the figures from actuarial and insurance consultancy Finity.
Alix Pearce, general manager climate, social policy and international engagement at the Insurance Council of Australia, said the increasing risk of natural disasters was one of the main reasons for rising insurance premiums. “The Australian market is very much on the front line of extreme weather risk,” she said. “We obviously have the cyclonic risk, which we’re seeing intensifying and .
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an expanding window for bushfire seasons, which are now overlapping with other hemispheres, and the flood risk, which is particularly prevalent up and down the east coast of Australia.” A non-climate factor, Pearce said, is that where the average cost to rebuild a home in 2019-20 was $345,000, it is now $440,000. Expensive homes would cost more.
The Finity figures suggest average premiums have climbed more steeply in some Sydney LGAs than others – almost doubling in Northern Beaches Council in just five years and rising 88 per cent in Ku-ring-gai Council area and 87 per cent in Sutherland Shire Council. The cheapest average home insurance is $1929 in Campbelltown City Council, but that is still 68 per cent higher than five years ago. Finity principal Stephen Lau said the 2022 floods were the second most expensive catastrophe over the past 50 years, and insurers factoring in a higher risk of flooding was the main reason for the increase in premiums in Hawkesbury rather than bushfire risk.
“Flood because of the way that it damages property when it gets inundated, it can cause a total loss very quickly,” Lau said. “You’ve got bushfire mitigation and firefighting efforts that can suppress the risk of fires, whereas with floods, you don’t.” Lau said bushfire risk would factor into premiums in local government areas with a lot of bushland, such as Northern Beaches, Ku-ring-gai, Hornsby and Sutherland Shire, while coastal areas have increased storm risk.
One of the costs for insurance companies is reinsurance – insurance that insurance companies can buy to mitigate their own risk. Swiss Re figures show global reinsurance costs went up 30 per cent for the Australian market last year. In Australia, insurance companies allocate the reinsurance cost back to the individual policies, in what is called “risk-based pricing”.
A problem that emerged in the Los Angeles fires was that state regulations forced insurance companies to keep premiums artificially low and the same for everyone. As a result, altogether, forcing home owners to rely on the state-backed insurance of last resort. Pearce said Australia was a well-insured nation by global standards.
However, levels of uninsurance and under-insurance are still growing rapidly because of the cost of premiums. “There’s about 60 per cent insurance penetration for floods nationally, but in high-risk flood areas ..
. insurance penetration, on average, drops to around 23 per cent,” Pearce said. A nationally representative survey of 2009 people commissioned by think-tank the Australia Institute found that 78 per cent of home owners have a fully insured home, 15 per cent are underinsured, and 4 per cent are uninsured.
Pearce said the best way to reduce insurance premiums was to reduce risk. The insurance industry is calling for a national baseline of current and future risk to determine where to build homes and to what standard. Finity principal Sharanjit Paddam said governments should consider buybacks in some areas, such as Lismore, and should not exacerbate the problem by continuing to build homes in floodplains.
“It’s particularly relevant to western Sydney, where over the last few years, there has been continued development in areas where it’s kind of debatable about whether we should actually allow development in those areas,” Paddam said. CSIRO research suggests every $1 invested in climate resilience saves up to $11 in recovery costs. The Albanese government has invested $27.
4 million in Australia’s first-ever National Climate Risk Assessment and National Adaptation Plan, but it is yet to be finalised. The federal government has also established the Insurance Affordability and Natural Hazards Risk Reduction Taskforce. Independent MP for Warringah Zali Steggall is campaigning on the issue with a private members’ bill to force governments to develop a National Climate Risk and Adaptation Plan every five years.
Michael Spencer, an adjunct senior research fellow in the Green Lab at the Monash Business School, said the consumer price index for the year to December 2024 showed insurance went up 11 per cent compared with general inflation of 2.4 per cent. “It drives people who are struggling into more vulnerable climate risk areas because that’s where housing costs are lower, so it’s an equity issue as well,” Spencer said.
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