Many households are on the verge of abandoning their home insurance policies, as new research has found about 1.24 million Australians are facing insurance affordability stress.
It comes off the back of home insurance premiums having risen 28 per cent, or $414, to $1894 in the past 12 months, being the biggest hike in two decades, according to the Actuaries Institute which commissioned two studies.
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A study by Finity Consulting’s Climate Analytics Practice found households spending an average of 8.8 weeks’ worth of wages on home insurance had risen between 10 and 12 per cent in the year to March 31.
“(That) is more than seven times what the average household spends,“ an Actuaries Institute spokesperson said.
Meanwhile, about 171,000 households were facing extreme insurance affordability stress, spending about $8800 per year on home insurance.
Some 1.24 million Australian households are now considered “affordability stressed” – meaning more than four weeks of their annual income is spent on home insurance.
The studies found in flood prone areas, such as Queensland and NSW, premiums had gone up by almost 50 per cent in the last year.
“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,” Finity Consulting author Sharanjit Paddam said.
“There’s also been an increase in natural disasters and higher reinsurance costs, driven by the climate change impacts we’re already seeing.”
The researchers are calling for urgent action from industry stakeholders before households begin cutting their home insurance policies because of cost of living pressures.
This included government reform of insurance-based taxes or subsidies to encourage further take up of insurance.
They also suggested introducing an interim known as an insurance pool to share risk across a wide group of people, so premiums are more affordable for high-risk customers, such as those in flood prone areas.
“Without insurance, households will struggle to recover from disasters and governments, taxpayers, charities and many informal means of support will be left to assist,” Paddam said.
“This usually results in households receiving some support but will not allow them the full economic recovery they would receive if insured.”