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Nearly one in eight households are facing home insurance affordability stress as premiums increased significantly over the past year, according to new research from Actuaries Institute.

The research showed that over the year to March 31, the median home insurance premiums rose 28% to $1,894. For properties at the highest risk, such as in flood-prone areas, premiums increased by 50%.

Furthermore, the research found that the proportion of “affordability stressed” households — or those that spend more than one month’s worth of their gross annual income on home insurance — rose from 10 to 12%.

On average, these households allocate approximately 8.8 weeks of their income to home insurance, a figure that exceeds the average household expenditure by more than sevenfold.

Overall, an estimated 1.24 million households, or around one in eight, are facing home insurance affordability stress, up from one million last year.

Report author Sharanjit Paddam said the recent increase in premiums is the largest over the past two decades.

“Half the increase in home insurance premiums relates to building cost inflation, which has spiked during the past two years due to supply chain shortages,” he said.

“There’s also been an increase in natural disasters and higher reinsurance costs, driven by the climate change impacts we’re already seeing.”

Where are the hardest hit households?

Based on the research, the households facing the most significant impact are those in flood-prone regions like Northern Rivers in NSW, as well as northern Queensland and Western Australia, where the risk of cyclones is considerable.

For a substantial portion of these financially strained households in these locations, over half of their home insurance premiums can be attributed to expenses related to natural perils, particularly floods.

An estimated 171,000 households across Australia were said to be enduring extreme affordability pressure, with riverine flood risk contributing more than half of their home insurance premiums.

The total flood premium for these 171,000 households, if they were fully insured is estimated to be $1.5bn per annum, or $8,800 on average per household.

Mr Paddam said these home insurance affordability pressures are likely to continue to worsen due to climate change.

“If we don’t take policy action now, we can expect to have more people abandoning home insurance. Without insurance, households will struggle to recover from disasters and governments, taxpayers, charities and many informal means of support will be left to assist,” he said.

“This usually results in households receiving some support but will not allow them the full economic recovery they would receive if insured.”

Actuaries Institute CEO Elayne Grace said there is a need to address this problem, particularly the acute affordability pressures in the flood insurance space.

“We need to tackle this problem holistically, with a well-designed suite of policy measures to achieve long-term benefits for all Australians.”

According to the report, here are some policy measures that can be considered:

  • Replacement of insurance taxes, such as stamp duty, and the NSW Emergency Services Levy with alternative revenue sources that are more equitable and efficient.
  • Strengthening and future-proofing of building codes and land use planning rules to improve the resilience of communities.
  • Improved collection and use of up-to-date data by governments, agencies, and the private sector to improve flood risk management and strategy and inform the public about a property’s flood risk.

Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

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LenderHome LoanInterest Rate Comparison Rate* Monthly Repayment Repayment type Rate Type Offset Redraw Ongoing Fees Upfront Fees LVR Lump Sum Repayment Additional Repayments Split Loan Option TagsFeaturesLinkCompare
6.04% p.a.
6.06% p.a.
$2,408
Principal & Interest
Variable
$0
$530
70%
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  • Immediate cashback upon settlement
  • $2000 for loans up to $700,000
  • $4000 for loans over $700,000
5.99% p.a.
5.90% p.a.
$2,396
Principal & Interest
Variable
$0
$0
80%
  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
6.14% p.a.
6.16% p.a.
$2,434
Principal & Interest
Variable
$0
$250
60%
  • Find out your loan eligibility in 2 minutes or less
  • Complete your application in less than 20 minutes
  • Low fees and fast approval times
5.95% p.a.
5.95% p.a.
$2,385
Principal & Interest
Variable
$0
$0
90%
5.94% p.a.
5.95% p.a.
$2,383
Principal & Interest
Variable
$0
$0
90%
Important Information and Comparison Rate Warning

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of .

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