Premium hikes put millions under 'affordability stress'

In a report highlighting the rapidly growing burden on families from surging home insurance, the Actuaries Institute has found that 1.24 million households are now experiencing "affordability stress" caused by surging premiums, up from one million families a year ago.

According to the institute, median premiums jumped 28 per cent in the year to March 31 to reach $1894.

Report co-author Sharanjit Paddam said a combination of rising building and reinsurance costs and climate change-related impacts like more frequent and destructive natural disasters were driving insurance costs up.

"This is the largest increase in home insurance premiums I have seen over the last two decades," Mr Paddam said.

And the actuary warned homeowners there was little prospect of premiums coming down.

"Based on science, we expect these home insurance affordability pressures are likely to continue to worsen due to climate change," he said.

"If we don't take policy action now, we can expect to have more people abandoning home insurance."

The problem is particularly acute for those living in high risk properties, such as in flood-prone areas, where premiums have skyrocketed by up to 50 per cent.

The report found the hardest hit households were in the Northern Rivers region of NSW which suffered a devastating succession of inundations last year, as well as northern Queensland and Western Australia, where the cyclone risk is high.

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The institute estimates that 171,000 families are under "extreme affordability pressure", and if they were to be fully insured the cost would be around $1.5 billion, or around $8800 per household.

"At the moment, $1.5 billion is the size of the problem," Mr Paddam said. "That is our estimate of flood insurance that could already be considered unaffordable."

He said this was a problem not just for those directly affected, but for the nation as a whole.

"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.

The federal government commenced a phased introduction of the Cyclone Reinsurance Pool in mid-2022 and the institute thinks it will reduce cyclone premiums by a quarter and cyclone-related flood premiums by almost 10 per cent.

For those at risk from flooding rivers, the institute recommends a range of initiatives and reforms including increased investment in flood mitigation works, changes to insurance-based taxes and targeted subsidies to encourage people to insure their homes.

It also calls on government to consider establishing a reinsurance pool for river flooding disasters.

Actuaries Institute chief executive officer Elayne Grace said, "flood insurance affordability pressures are acute and there is a need to address this problem urgently".

Auditor Evelyn Chow said that, ultimately, reducing risk was the "only way ... to address affordability stress".