Consumer group Choice is warning the cost of home insurance could almost double in the decades ahead with predictions extreme weather will become more common.
It has commissioned a study looking at the effect of climate change on the insurance market and has found insurers are rejecting customers deemed too risky.
Australia’s population is growing and its cities are expanding and Karl Mallon, the chief executive of the research group Climate Risk, says people are increasingly building homes in areas with serious environmental risks.
He says buying insurance for those properties is already becoming more expensive.
“Areas prone to bushfire, areas prone to extreme winds. Now the insurance companies must price those in, into their premiums but those can be several thousand dollars a year with your premiums up to $7,000 a year for a home and that’s not including contents,” he explained.
Karl Mallon expects those prices to rise along with sea levels, and as storms and bushfires become more regular and more severe.
Premiums could rise by as much as 92 per cent over the period of a mortgage, and that that could have a negative effect on the property value of more than 20 per cent relative to the general market.
“That is inevitable and I guess that’s one of the major reasons for this report is what we’re trying to do is get some information which frankly, has been known in expert circles for some time,” Mr Mallon added.
Alan Kirkland from Choice, which commissioned the report, says insurers need to be more transparent about how they price the risk on properties and how premiums could rise in the future.
“There’s a lot of variations. Some insurers are reasonably good. Others, however, are very poor at explaining why premiums go up suddenly and what information is behind those decisions,” he observed.
Campbell Fuller from industry lobby group the Insurance Council of Australia says insurers only price policies for the year ahead and do not take into account longer term projections.
“Insurers certainly can’t inform consumers about the anticipated risk under whatever scenario that climate change might have on that property,” he argued.
“That’s not the role of insurance, but what insurers do do with consumers is send a very strong price signal. If you live in an area that is exposed to extreme weather – whether it’s flood, cyclone, bushfire – then that is already priced into your premium.”
Insurance companies would be doing modelling on the potential risks and what impact they could have on people’s premiums in the future.
However, Mr Fuller says it would put companies at a huge competitive disadvantage to make that information available to customers.
“Are you suggesting that insurers should open their commercially sensitive data to consumers based on any number of scenarios that might take place? I think that’s commercial lunacy,” he responded.
“I think that Choice is demonstrating a lack of understanding of the insurance market.”