The number of homes without adequate insurance could jump by 1 million by 2050 because climate change threatens to force up insurance premiums and make cover unaffordable for more households, the financial regulator has found.
The Australian Prudential Regulation Authority (APRA) on Tuesday released the results of its climate “stress test” for the insurance industry, which explored how climate change could worsen affordability.
The stress test, which involved working through scenarios with the country’s five biggest insurance companies, found the proportion of households without adequate insurance could rise from about one in seven today, to one in four by 2050.
Under one scenario of worsening climate change, APRA found expected annual losses from weather-related events could rise from about $7 billion today to more than $16 billion by 2050.
APRA said regional and rural communities would be disproportionately affected, and the rate of insurance would widen more in regions where there were already low levels of insurance protection today.
The report said if more people weren’t adequately covered, it could increase uninsured losses for households, increase credit risk for banks, and constrain growth in the home insurance market. “Over time, these pressures could erode the resilience of Australia’s financial system,” APRA said.
More to come
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Clancy Yeates is deputy business editor. He has covered banking and financial services, and was previously national business correspondent in the Canberra bureau.Connect via X or email.
