Australia’s Insurance Crisis: Extreme Weather and Affordability Stress
Australia’s insurance sector is grappling with rising claims and affordability issues as extreme weather events become more frequent and severe. A recent government report reveals that natural disasters have cost $2.2 billion in just six months, with projections indicating potential annual losses of $8.7 billion by 2050.
The Home Safe: National Leadership in Adapting to a Changing Climate report, released by the Climate Change Authority (CCA), attributes the surge in damages to the increasing frequency and severity of natural disasters. These include cyclones, bushfires, droughts, and floods, which are now affecting areas previously considered low-risk.
According to estimates from the Insurance Council of Australia (ICA), natural disasters cost Australian homeowners around $4 billion annually. This figure encompasses both insured and uninsured losses, as well as related impacts such as mental health issues, displacement, and loss of employment or housing.
Matt Kean, chair of the CCA, highlighted that millions of homes are now exposed to growing climate risks. He pointed to recent flooding on the New South Wales mid-north coast as an example of the continuing exposure to such risks. Research cited in the report from ICA, Treasury, and The McKell Institute breaks down the annual cost of residential building damage as follows:
- $2 billion for cyclones
- $1.5 billion for floods
- $486 million for bushfires
The CCA’s analysis of claims data from the Actuaries Institute and ICA revealed that insurance claims following ex-Tropical Cyclone Alfred and the North Queensland floods exceeded $1.2 billion. Affordability concerns are escalating, with 15% of Australian households experiencing home insurance stress in 2024. Rising premiums and reduced insurability in high-risk areas are contributing to financial strain for property owners.
The report also warned that climate change may impact long-term property values, projecting a potential $500 billion reduction in the national property market by 2030. Beyond physical damage, Australians face disruptions to health, education, and work.
To address these challenges, the CCA recommended investment in infrastructure, regulatory updates, and increased access to information to support risk management. CSIRO research found that every $1 spent on adaptation or risk reduction may save $2 to $11 in recovery. Government initiatives include the National Climate Risk Assessment, the forthcoming National Adaptation Plan, and funding programs such as the Disaster Ready Fund and Critical Infrastructure Resilience Strategy.
As insurance costs continue to rise, the question remains: Are higher insurance costs a necessary consequence of inaction on climate risk? The growing insurance affordability stress underscores the urgent need for comprehensive climate risk management strategies.
