The NSW Northern Rivers region is facing an intractable problem - property insurance in the global climate crisis

 

The Climate Risk Group published a report in June 2024 - Going Under: The imperative to act in Australia's high flood risk suburbs

The report looked looked at risk of damage from riverine flooding to residential homes across Australia in 2030 under RCP 8.5 scenario and its analysis covered over 14,739,901 individual addresses and 14,995 suburbs, focussing on homes identified as High Risk Properties (HRP) by 2030 - properties where insurance may become unaffordable or withdrawn completely.

The Climate Group's investigations found:

• By 2030, 588,857 Australian homes are considered to be High Risk Properties: they carry a high risk of flood cover becoming prohibitively expensive or withdrawn, i.e risk becoming uninsurable.

• NSW is by far the most impacted state, with 206,622 individual homes identified as being at high risk of becoming uninsurable by 2030.

• This compares with 382,235 homes in all other states put together.

This report identified nine urban settlement areas in the Northern Rivers region of New South Wales as being at risk in this scenario.

Tweed Heads South, Chinderah, Ballina, West Ballina and Grafton are identified as Black Zone localities. Black Zone Suburbs are suburbs where over 80% of residential properties are at high risk of becoming uninsurable. In these zones, property buy-back and community relocation will have to be considered.

Tweed Heads, Tweed Heads West, Lismore, South Lismore and Yamba are identified as being Red Zone localities. Red Zone Suburbs are suburbs where 50-80% of residential properties are at high risk of becoming uninsurable. With investment in adaptation these zones could still be viable.

On 16 May 2024, the Australian Senate created the Select Committee on the Impact of Climate Risk on Insurance Premiums and Availability. The committee is currently conducting an inquiry into the Impact of Climate Risk on Insurance Premiums and Availability and is to present a final report to parliament by 19 November 2024.

The Insurance Council of Australia has informed this inquiry of the industry's assessment of the national situation:

> Worsening extreme weather events, expansion of development in high-risk areas, growing asset values and higher inflation, particularly in the construction sector, are putting upward pressure on the affordability of insurance in Australia and across markets globally. This is widening the gap between those who can afford insurance and those who can’t, particularly in areas most vulnerable to extreme weather risk.

> To address insurance affordability over the short- to medium-term, it will be critical to continue to strengthen the resilience of communities and businesses so that they can better withstand the disasters Australia is already experiencing. This includes bolstering investment in resilience enhancing infrastructure, strengthening our building stock, and reforming land use planning to improve community safety and affordability when building new homes. After peril risk, the second biggest component of the cost of insurance premiums is taxation; the removal of state insurance taxes will also be an essential reform to provide immediate cost of living relief.

> Over the longer-term, in addition to consistent resilience investment, industry and governments need to continue to tackle the underlying driver of worsening extreme weather, climate change, by maintaining a focus on achieving net zero emissions by 2050.

> The insurance industry, in partnership with governments and regulators, is at the forefront of working to close the protection gap. For example, the Australian Government’s Hazards Insurance Partnership (HIP), focuses on bringing industry and government together to identify the high-risk areas around the country where insurance affordability challenges are growing, and tests and targets the appropriate policy solutions. Insurers are also working with the Australian Prudential Regulation Authority (APRA) to undertake a Climate Vulnerability Assessment focused on the impacts of a warming climate on the availability of general insurance. The ICA and its members have also led key industry initiatives, including releasing an industry-wide climate change roadmap and producing new economic and actuarial analysis focused on the costs of extreme weather, uplifting Australia’s building codes and standards and strengthening state and federal resilience investment.

Northern Rivers newspaper The Echo in an article titled Climate change pushes up insurance, families going uninsured on 8 October 2024:

Financial Rights Legal Centre Senior Policy and Communications Officer Julia Davis told the enquiry, ‘The problem of insurance in a changing climate has reached a point where the market is not going to solve these problems. It is time for government intervention.

‘The repercussions of these events extend beyond financial strain for consumers. The consequences have been deeply personal with individuals facing emotional stress, strained relationships and trauma.’

Ms Davis also said managing insurance claims was ‘nothing short of retraumatising’ for many consumers.

Financial Counsellors Australia National Coordinator for Disaster Recovery, Vicki Staff said her organisation had seen people being quoted over $60,000 per year for insurance.

‘They are now having to find an insurance product that doesn’t fully cover them for the natural perils they are the most at risk of,’ she said.

Widening gap

Insurance Council of Australia Chief Operating Officer Kylie McFarlane told the enquiry, ‘The widening gap between those who can afford insurance and those who can not, especially in areas vulnerable to extreme weather risk, is an issue that we need to address collectively.

‘Insurance prices risk, and the most effective way to reduce pressure on premiums and reduce the protection gap is to mitigate or eliminate those risks.