Climate change, supply chain shortages behind rising home insurance premiums

Premiums have recorded the biggest rise in two decades, jumping by 28 per cent in the 12 months to March 31, according to new research by the Actuaries Institute.

And the most at-risk homes, such as those in flood prone areas, were slugged even more with premiums up by 50 per cent.

It has raised concerns some Australians may decide to stop insuring their homes, leaving them vulnerable to financial burden after disasters.

Farmer Peter Lake said more frequent and severe floods on his Ulmarra property in northern NSW had made his farm insurance unaffordable.

"We've dealt with major floods in 2009, 2011, 2013 and 2021 but nothing could have prepared us for February 2022," he said.

"We lost fences and fodder and were forced to sell most of our stock."

Mr Lake, who is a member of Farmers for Climate Action, said he was quoted $19,000 a year to insure his farm.

"We've had to weigh up not insuring our farm equipment, sheds and fences. We're only insuring the house and a horse float now," he said.

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Climate Change Council economist Nicki Hutley said Australia's record on disaster resilience being "well below where it should be" was contributing to rising insurance costs.

"These figures really bring home how difficult accelerating climate change is making insurance affordability for so many, particularly those who are most vulnerable," she said.

"We need to direct more funding to resilience measures in homes and communities to reduce risks, rather than relying on post-disaster recovery."

It's estimated 1.24 million Australian households are facing home insurance affordability stress, according to the Actuaries Institute's Home Insurance Affordability Update report.

The report found the hardest hit households were in the flood-prone Northern Rivers region of NSW, and areas of high-cyclone risk in northern Queensland and Western Australia.

Report co-author and actuary Sharanjit Paddam said it was the largest increase in home insurance premiums he had seen in 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."

The average cost of home insurance in Australia is estimated at $2234 by the Actuaries Institute.

The Northern Territory has the highest estimated average premium at $3145, mostly due to costly cyclone cover.

"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."