The Insurance Council of Australia (ICA) said a new climate stress test from the Australian Prudential Regulation Authority (APRA) adds to the case for faster government action on disaster mitigation, insurance taxes, and planning rules as extreme weather puts more pressure on home cover.
The Insurance Climate Vulnerability Assessment report looks at what could happen if weather risks keep rising and no further risk reduction is built into the system. According to the ICA, the results support the industry’s long-running call for more investment in resilience and mitigation, especially in high-risk areas.
“APRA’s analysis is not a forecast, it's a worst-case scenario if extreme weather continues to worsen and further risk is baked into our system,” ICA CEO Andrew Hall said, adding that government decisions made now will shape how much risk households face in the years ahead.
“The policy choices around investment in mitigation for homes which governments make now can help to prevent rising risk.”
The industry group said worsening extreme weather, along with inflation, rising asset values, and insurance taxes, is making it harder for some households to keep cover. While only a small share of properties fall into the severe and extreme risk categories, the cost of repairing or rebuilding them is much higher than the national average.
Aon analysis cited by the ICA found that 25% of flood repair and rebuild costs come from just 11% of the most at-risk properties.
The ICA said that without intervention, Australia will keep spending billions rebuilding homes in the same flood-prone areas, using resources that could otherwise go towards new housing. It has again called for a Flood Defence Fund and a national hazard database that can be used by governments, businesses, and homeowners.
The reaction comes as APRA’s broader assessment points to a growing protection gap in home insurance. Separate reporting on the regulator’s findings said about one in seven Australian households are already without home insurance, with that figure projected to rise to one in four by 2050 if affordability continues to worsen.
That pressure is expected to fall hardest outside the major cities. APRA’s assessment said non-insurance rates are already higher in regional and rural areas than in capital cities, and that New South Wales and Queensland account for about 60% of uninsured homes today. At the same time, Hall said the pressures outlined in the report are not unique to Australia.
The ICA said the findings also point to the need for broader policy changes, including land-use planning reform, changes to taxes on premiums, and stronger partnerships between insurers and government.
APRA also said the effects of the protection gap go beyond households, with risks flowing through to banks, governments, and the wider economy as more homes become uninsured or underinsured.
“But if we act now we can lead the world in resilience, protecting our communities and making insurance more available and affordable around the country,” Hall said.
