Research from the Actuaries Institute found median home insurance premiums surged by more than $400 in the 12 months to March, reaching an all-time high of $1,894 across all states.
Rising building costs - exacerbated by the war in Ukraine and the pandemic - supply chain shortages, and higher natural disaster premiums are the key contributors to increasing insurance costs.
For high risk-properties, those in flood-prone parts of the country such as the NSW Northern Rivers, and cyclone-prone areas such as North Queensland and Western Australia saw home insurance premiums jump by 50%.
Co-Author of the report Sharanjit Paddam said the surge in premiums was the largest in more than two decades.
“Based on science, we expect these home insurance affordability pressures are likely to continue to worsen due to climate change," Mr Paddam said.
“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.
“This usually results in households receiving some support but will not allow them the full economic recovery they would receive if insured.”
The report found almost one in eight households - or 1.24 million - are facing affordability stress, meaning they spend more than four weeks of their annual income on home insurance.
This is up from one million households a year ago.
Of the 171,000 households considered under the most severe pressure, more than half the cost of home insurance premiums was due to riverine flood risk.
The researchers estimated that the total flood premium for these 171,000 households, if they were fully insured, would be $1.5 billion per year, or $8,800 on average per household.
Over the past year, overall insurance costs have climbed by 14.2% according to the consumer price index.
A second report from the Actuaries Institute recommended governments consider a range of policy measures to combat affordability stress such as a reinsurance pool for homes impacted by riverine flood risk.
In 2022, the Morrison Government introduced a cyclone insurance pool backed by $10 billion in taxpayer support for households affected in parts of northern Australia.
The Institute suggests a similar insurance pool should be considered for flood-prone areas.
Lead Author and Swiss Re Head of Portfolio Management Evelyn Chow said risk reduction is needed to address the affordability issue.
“If the government was to give consideration to an insurance pool, any future model would need to consider the fact that flood risk is highly localised in Australia among a relatively small number of households with significant exposure, “ Ms Chow said.
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