Australians are confronting a widening protection gap as household budgets come under pressure from rising home and contents premiums, while many property owners remain uninsured or underinsured relative to natural peril losses and rebuilding costs. Market data, industry bodies, and polling conducted over the past two years point to a combination of higher construction and reinsurance costs, more frequent and severe weather events, and widespread underestimation of replacement values for homes and contents.
Underinsurance is generally understood to arise when the sum insured is not enough to fully rebuild a dwelling or replace contents on a like-for-like basis after a major loss. The Insurance Council of Australia (ICA) has said that this situation makes it difficult “for those Australians who are under-insured to resume their standard of living – whether it’s rebuilding their home or replacing belongings to the same standard – if their property is badly damaged or destroyed.”
Quantity surveyor firm MCG estimates that a substantial portion of Australia’s 11.4 million residential dwellings may now be underinsured, following several years of construction cost inflation. Director and property insurance specialist Marty Sadlier said many policyholders are relying on outdated assumptions. “Many homeowners simply don’t know what it would actually cost to rebuild their property today. Demolition, compliance with new building codes, professional fees – all of that adds up. Without a proper replacement cost assessment, people are effectively guessing, and guessing is risky when your home is your biggest asset,” Sadlier told 7NEWS.com.au. Polling by the Australia Institute in 2025 indicated that about 1.4 million homes were either uninsured or under-insured, highlighting the scale of exposure in the owner-occupier segment.
Cost remains a central barrier to maintaining or increasing cover. A YouGov survey commissioned by the Climate Council in January 2026 found that 54% of insured respondents were concerned that bushfires, floods, and severe storms could render home insurance unaffordable or unavailable in their area. Nearly half (46%) said their premiums had already increased because of extreme weather, while 22% indicated they may consider going without insurance if prices continue to rise alongside climate-related risks. Commentary from the Australia Institute reflects similar household sentiment. Senior economist Matt Grudnoff said: “Australian families are facing an almost impossible choice when it comes to home and contents insurance. They either find the money to pay ridiculous premiums or risk losing everything they own.”
A separate poll conducted by Nine.com.au in late 2025 found that about three in four respondents expected premiums to rise further in 2026, with more than half reporting they had already experienced an increase over the previous year. Some respondents said they had cancelled cover due to affordability concerns, including one who commented: “I can’t afford insurance and food.” Another said: “I have never made a claim in 65 years, and my premium just keeps going up. I’m about to cancel all insurance and take a risk.”
Recent analysis suggests home and contents premiums have been rising faster than headline inflation. Canstar data indicates that the average household premium increased by about 14% in 2025, from $2,452 to $2,795. In some locations, increases reached around 17%, or up to $700. Premium levels also vary across regions and risk profiles. Residents in North Queensland and the Northern Territory recorded average annual home and contents premiums above $4,600, reflecting higher exposure to cyclone and flood risk and the associated cost of reinsurance.
Price dispersion between insurers remains marked. Research by Compare the Market identified wide gaps between the lowest and highest quotes for similar risks. Spokesperson Chris Ford reported “a $2,853.78 gap between quotes for the same property in Sydney’s Sans Souci,” and a $1,490.88 difference for one home in Brisbane’s bayside suburb of Wynnum, indicating significant variation in pricing for comparable policies.
Natural catastrophe losses continue to influence pricing and capacity across the domestic market. ICA data shows that extreme weather events in 2025 generated almost $3.5 billion in insured losses from about 264,000 claims nationwide, following five significant or catastrophic events. This compared with $581 million in extreme weather losses in 2024 and $2.35 billion in 2023, illustrating volatility in annual outcomes. The ICA and other market observers link these catastrophe costs to higher reinsurance and capital requirements for insurers, which are then reflected in retail premium rates. At the same time, rebuilding expenses have increased. Sadlier said: “The average cost to build a house has increased some 29% to 30% since 2019,” leaving many sums insured that were considered adequate only a few years ago “well and truly now out of touch.” Consultancies and comparison sites also point to broader operating expenses as a contributor to premium pressure, including administration and staffing costs. Insurers note that changes in premiums continue to depend on individual circumstances such as claims history, location, construction type, and coverage options, with differing outcomes for new and existing customers.
The combination of affordability constraints, underinsurance, and non-insurance has increased industry attention on the household protection gap. Climate Council data cited for 2023 suggests that about 5.1% of Australian households were underinsured and 3.3% had no insurance at all, representing more than two million people without full financial protection for their homes and contents. Sadlier said the issue is often not the result of deliberate under-spending on cover. “Under-insurance isn’t always a deliberate cost-saving choice – more often, it stems from poor understanding of actual rebuild costs and how insurance works,” Sadlier said.
For insurers, brokers, and underwriting agencies, these trends raise questions around product design, risk-based pricing, and the role of mitigation. Stakeholders are examining options such as improved sum insured estimation tools, clearer disclosure of coverage limits, and broader collaboration with governments on resilience measures, building standards, and land-use planning in higher-risk areas. As weather-related losses and cost pressures continue, market participants must balance maintaining viable pricing and capital positions with efforts to support policyholders in retaining cover and narrowing the protection gap in Australia’s housing market.
