Home Insurance Affordability and Home Loans at Risk
Analysing the drivers of rising affordability stress in Australia and potential implications for the home loan market.
In brief:
- The proportion of "affordability-stressed" households - those facing insurance premiums of more than four weeks of gross household income – rose to 15% or 1.61 million households in the year to March 2024. This is up from 12% in 2023 and 10% in 2022.
- Affordability-stressed households spend an average of 9.6 weeks of their gross income on home insurance - seven times more than non-stressed households.
- Home insurance premium increases are primarily a consequence of increased reinsurance costs during 2023, driven by rising costs of perils.
- Decreasing home insurance affordability has implications for the banking sector, as lenders require borrowers to purchase insurance. An estimated 5% of Australian households with mortgages are experiencing insurance affordability stress, representing $57b of loan balances and 3% of all home loan assets.
- Resilience loans are an opportunity for lenders to assist customers to have safer homes and affordable insurance.
The number of Australian households experiencing home insurance affordability pressure has risen by 30% to 1.6 million in the past year, driven by continued increases in premiums exceeding increases in household incomes.
Our latest Report, which updates the Australian Actuaries Home Insurance Affordability (AAHIA) Index, analyses the drivers of rising affordability stress in Australia and potential implications for the home loan market.
While insurance remains generally affordable for 85% of households, it's concerning that there's now 1.6 million households struggling to afford to insure their homes, up from 1.24 million a year ago. Unfortunately, we expect this will continue because of the overall increasing risk of natural disasters associated with climate change, which will continue to put upward pressure on premiums.
— Sharanjit Paddam Lead author of Home Insurance Affordability and Home Loans as Risk
We know as a country we need to manage the risk of the changing climate. Sustainable finance should be part of the solution. It creates a path forward for households, investors, insurers and lenders, and allows government to focus on households in most need and community-level measures.
— Elayne Grace Actuaries Institute CEO
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