Disaster recovery is a key source of inequality globally, with the most disadvantaged more likely to be impacted by long term poverty and inter-generational inequalities after an event.
The Centre for Social Impact at UNSW Sydney (CSI UNSW) recently convened global and national experts, including Vicki Mullen, Senior Consultant at Finity, and Professor Paula Jarzabkowski from UQ, to discuss how Australia may address the looming insurance affordability crisis and the potential need to relocate entire communities due to climate change.
The Home Insurance Affordability and Home Loans at Risk report revealed that 1.6 million Australian households are experiencing ‘insurance affordability stress’. These households face an average of 9.6 weeks of their gross income on home insurance, which is seven times higher than households that are not ‘affordability-stressed’.
The report, commissioned by the Actuaries Institute and authored by Finity actuaries, shows that ‘affordability-stressed’ households rose to 15% - up from 12% in 2023 and 10% in 2022 - with the trend set to continue as the frequency and intensity of natural disasters grow.
“One of the key findings from this research is that insurance affordability stress is driven by the interaction between premiums and household income. Extreme home insurance affordability pressures are concentrated in regions with lower average household incomes and higher perils risks.”
“The decline in home insurance affordability means that communities in these regions must be supported by a resilience-based approach for future risks. This will require strong collaboration between private and public sectors and community buy-in,” said Ms Mullen.
As parts of Australia are now becoming potentially uninsurable, different approaches need to be considered. For example, communities exposed to recent extreme flooding events in Queensland and NSW have been supported with resilient homes funding, including voluntary home buybacks.
Professor Paula Jarzabkowski is a global expert in the public-private mechanisms to address the insurance protection gap, her latest book Disaster Insurance Reimagined looks at the challenges of disaster risk financing.
“We take for granted that advanced economies run on insurance being there in the background.”
“It’s about affordability, and the fact insurers themselves do not want to take some of the risk. So, we need to start having a different dialogue about how we can keep people insured whilst also working to lower their likelihood of loss and damage from extreme weather,” said Professor Jarzabkowski.
Associate Professor Melissa Edwards, Research & Innovation Director at UNSW Centre for Social Impact, explained the need to consider the process by which communities are relocated and their voice in that process, and the need to also evaluate the positive benefits of relocation for strengthened social cohesion, financial security and improved living conditions.
“Through our research work into the benefits of safe housing, UNSW Centre for Social Impact has seen first-hand how reduced exposure to social and environmental risks can enhance social and financial wellbeing, create belonging and transform communities,” said Associate Professor Edwards.