Australia’s home insurance protection gap is expected to widen as insurers increase premiums in response to higher claim costs, with S&P Global Ratings warning that more households and lenders are likely to face greater climate‑related risk.
In its report, “Australia Home Insurance Brief: Falling Coverage, Rising Risks,” released on April 1, 2026, S&P Global Ratings says reemerging inflation and extreme weather losses are pushing home insurance premiums toward levels that many households may not be able to afford. The ratings agency expects insurers to keep lifting rates to reflect higher claims and input costs, even as more properties become underinsured or uninsured.
Drawing on stress tests undertaken by the Australian Prudential Regulation Authority (APRA), the report notes that, under two severe but plausible climate scenarios, premium unaffordability would “significantly widen the nation’s insurance protection gap.” APRA estimates that about one in seven Australian homes is currently uninsured and that this could rise to one in four by 2050 under both scenarios. S&P Global Ratings says a higher share of uninsured and underinsured housing stock could increase uninsured losses for homeowners and raise the likelihood of credit losses for banks where property collateral is not adequately insured following a major event.
Higher interest rates, rising energy costs, and broader cost‑of‑living pressures are expected to influence household decisions about insurance cover. S&P Global Ratings expects some policyholders to respond by reducing sums insured, changing coverage, or cancelling policies to prioritise other non‑discretionary expenses, particularly in regions with heightened natural peril exposure. Recent polling points to growing concern about climate‑related affordability. National survey work commissioned by the Climate Council and conducted by YouGov found that 54% of respondents with home and/or contents insurance are worried that extreme weather events – such as bushfires, floods, or storms – could make insurance unaffordable or unavailable where they live, while 46% reported experiencing premium increases linked to extreme weather. One in five (22%) people with home and/or contents insurance indicated they are likely to consider going without cover if worsening extreme weather continues to drive up costs. Cost was identified as the main barrier by most uninsured homeowners and many renters.
Industry loss data indicate that claims experience has remained high. The Insurance Council of Australia (ICA) reported that extreme weather events in 2025 generated almost $3.5 billion in insured losses from around 264,000 claims. S&P Global Ratings expects this pattern of weather‑related losses, together with higher reinsurance and input costs, to contribute to further adjustments in home insurance pricing.
Conditions in the construction sector are also feeding into underinsurance. Gallagher notes that a combination of labour shortages, supply chain disruptions, and demand for rebuilding after major events has pushed up the cost of building materials and construction services. Where sums insured have not been updated to reflect current rebuild values, policyholders face the risk that claim payments may not fully cover reconstruction after a severe loss. Government charges, including goods and services tax and state‑based insurance taxes applied to higher declared values and base premiums, add to the final cost of cover for households and property investors.
Market participants are setting out steps to reduce underinsurance. Gallagher recommends that homeowners and investors obtain independent property valuations, with building replacement valuations undertaken at least every three years, alongside broker discussions on policy conditions, sublimits, exclusions, and optional endorsements that can adjust sums insured over time. Other approaches outlined by brokers and insurers include using online rebuilding cost calculators as a preliminary check before renewal and obtaining professional estimates from registered builders or architects after a loss where a property is destroyed. Risk management measures that lower the likelihood or severity of damage, where practical, are being used as part of efforts to limit underinsurance.
S&P Global Ratings considers it likely that governments will become more involved in high‑risk regions where private insurers are unable to offer affordable cover. One example is the Tasmanian government’s proposal for TasInsure, a state‑owned insurer that would move some catastrophe risk from private sector balance sheets to the public sector and taxpayers. The report and related data signal ongoing pressure on pricing, product design, geographic risk appetite, reinsurance programs, and customer engagement as the sector responds to the interaction of climate risk, affordability constraints, and potential policy intervention.
