By Ron Arnold, founder 11eight

In parts of Australia, home insurance is becoming very expensive, even unaffordable. This is no longer a small issue. It is concentrated in flood, cyclone and bushfire zones, and is likely to worsen as climate change unfolds.

The Actuaries Institute estimates about 15% of households – about 1.6 million homes – are under home insurance affordability stress. In some high flood risk areas, only about 23% of homes have flood cover and premiums can reach tens of thousands of dollars. For people with a mortgage, keeping home insurance is usually required by the bank.

Many families have lived in the same homes for decades. What has changed is how risk is priced. In the past, risk was spread across large groups of policyholders. It is now calculated at the individual address.

At the same time, natural disasters are occurring more frequently and causing greater damage. Building costs have also increased. As a result, premiums need to be higher.

And according to the Australian Prudential Regulation Authority’s first insurance climate vulnerability assessment, one-quarter of free‑standing properties are expected to be uninsured or underinsured by 2050 – up from one in seven today – equating to about 40,000 additional households losing protection each year for the next 25 years.

Better planning rules and stronger building standards are important, as is reducing government taxes and charges on premiums. But these fixes do not solve the bigger problem: what do we do about homes already in high-risk areas where insurance premiums are prohibitive?

A practical response must deal with several interrelated things at once and requires a long-term commitment.

First, risk needs to be clearer at the point of sale. When people buy a home, they should see standard information about flood, bushfire and cyclone exposure, along with an indication of likely insurance costs. Buyers should understand the long-term costs and insurability of a property before committing to it. A mandatory “exposure” requirement should be implemented as part of the home sales process. 

Second, we need to be honest about rebuilding. In some areas, better building standards and mitigation can reduce risk enough to make rebuilding viable. In others, repeated exposure means rebuilding will never be affordable in the long term.

After the 2022 floods, the NSW government funded buybacks and relocation in the Northern Rivers. In some communities, moving rather than rebuilding is the only durable solution.

These discussions are easier before the next disaster, when decisions can be made calmly. After a disaster, choices are made under pressure and emotion, which rarely lead to the best long-term outcomes.

Third, supporting home buying decisions and honest conversations about where rebuilding is viable, and where mitigation is needed, requires a robust, reliable hazard data asset that integrates all the available information. This is a foundational community asset.

The Insurance Council of Australia has called for funding of a national hazard data asset that “standardises and makes current and future hazard data publicly available”, supports hazard map updates, and “leverages key infrastructure data assets including a national register of buildings, household resilience and a coastal defence register”.

Fourth, home insurance cannot carry the full cost of climate risk on its own. ICA has proposed a long-term flood defence and resilience fund to support mitigation and buybacks.

Any larger funding model must be founded on clear principles. It should be evergreen, building reserves over time. It should focus on existing homes, and not be available for new development in high-risk areas. It should be independently governed and transparent. And it should involve shared contributions. Beyond federal funding, states must also contribute, as should lenders where relocation or mitigation reduces risk in mortgage portfolios.

Fifth, insurers’ treatment of catastrophe allowances should be examined. In years when natural peril costs come in below allowance, those funds are released to profit rather than retained to build multiyear buffers. Allowing insurers, under clear regulatory oversight, to reserve unspent perils allowances for future catastrophe years could help smooth premium volatility and reduce reliance on reinsurance. This would operate as a structured catastrophe reserve mechanism within the insurance system, distinct from any broader externally funded catastrophe pool.

Sixth, insurers should work with regulators to introduce a standardised premium breakdown, showing core components – base risk, catastrophe exposure, reinsurance, building cost inflation, taxes and levies – with year-on-year movements presented in a consistent format.

This is a sensitive issue for insurers – pricing is central to profitability and competitiveness. But when premiums can run into the tens of thousands, greater transparency is warranted.

Finally, home insurance design in the highest-risk areas needs to change. The traditional model of full, like-for-like replacement works in lower-risk locations. But where the main risk is total loss, premiums are driven almost entirely by catastrophe exposure.

In those areas, cover needs to evolve. Higher excesses and a redefinition of coverage are needed. This is not withdrawing protection; it is a way to maintain some level of coverage at a lower cost.

That may mean funding smaller, simpler and more resilient homes instead of automatic like-for-like replacement. Lower rebuild values mean lower premiums. It also means accepting that, in some locations, the cover will provide for relocation rather than for rebuilding.

Ultimately, insurance in high-risk areas must evolve to be clear about what it supports: sustainable rebuilding where it makes sense, and relocation support where it does not.

Where to from here?

Pricing has made the rising risk visible. Policy now needs to respond just as clearly, particularly given that, realistically, it will take decades to move to a more sustainable position.

These reforms need to be understood as a long‑term, mutually reinforcing package, not a set of quick fixes. Governments, councils, insurers, lenders, regulators and communities all need to stay at the table for many years to work in practice rather than just on paper.

Enough reports and reviews have been done. We understand the challenge. Waiting and admiring the problem will not fix this. It just pushes the cost onto households after a disaster, onto taxpayers over time, and onto future generations. 

It is time for an integrated and sustained response to this wicked problem.