Insurance premiums will keep rising without measures to reduce the risk of damage from floods and bushfires, the latest catastrophe report warns.
“These pressures are not going away,” Insurance Council CEO Andrew Hall said ahead of the report’s launch on Wednesday.
He said three years of sustained extreme weather events, inflation pressures and rising reinsurance costs are causing premiums to rise.
The industry body is also calling for urgent reform to state insurance taxes to bring immediate relief to households and businesses, particularly in NSW where they are higher than other states.
Stronger building codes and funding programs for retrofitting homes to make them more flood and fire-resistant are also on the wishlist.
Since the 2019/20 Black Summer bushfires, insurers have paid more than $16.8 billion in natural disaster claims from 13 declared catastrophes and five significant events.
Insurance premiums are based on the risks the policyholder is exposed to, insurers’ business costs and taxes, with the median Australian home insurance premium calculated at $1894.
Different regions face different threats, and it costs the policyholder.
For example, in the Northern Territory – the most expensive place in the nation to get insurance – greater cyclone risk is the primary threat and accounts for more than half the average cost of premiums of $3145.
In Queensland, greater storm, cyclone, and flood risk, plus higher insurer costs, take insurance premiums well above national average as the second-most expensive at $3032.
NSW is next at $2600, while South Australia is the most affordable at $1300.
But local risks or higher materials or labour costs to settle a claim can cause premiums to spike in specific areas and put cover out of reach of household budgets.
“It is scenarios like this where risk-reduction activities are a pressing necessity,” the report said.
The financial impact of insurance catastrophes over the past 12 months was about one-fifth of the previous record-breaking period, but premiums continue to rise.
Insurance Council president Nick Hawkins said evidence of the impact climate change must bring changes that will keep premiums affordable.
“We need long-term investment in resilience and mitigation infrastructure to reduce the impact of disasters before they occur,” he said.
“We need better land-use planning to stop new development in high-risk locations, and to relocate or buy-back properties that just cannot be protected from the risk.”
The 2022 floods in NSW and southeast Queensland cost $6 billion in insured losses and remain the costliest extreme weather event.
But Cyclone Tracy – which caused $200 million in insured losses when it struck Darwin on Christmas Eve 1974 – would cost $7.4 billion in insured losses in 2023, according to inflation-adjusted modelling by Risk Frontiers.
The Sydney hailstorm in 1999, which caused $1.7 billion in insured losses across 85 suburbs, would cost $8.85 billion if it happened today.
The principle of resilience must be embedded in the National Construction Code to take account of the risks of more frequent extreme events and make homes more durable, the industry said.
The impact of extreme weather on Australian shores is also increasing the global cost of reinsurance, which is insurance for insurers to reduce the hit from large payouts.
Reinsurance costs rose to 20-year highs this year, with Australian insurers facing cost increases of up to 30 per cent.
This is also prompting insurers to cut back on exposure by reducing coverage in some lines of insurance.