Climate change is happening and it’s got us thinking that many Australians need to have an honest conversation with themselves about where and how they build homes and the cost of insurance for those areas.
Households are expected to see increased cost pressures as a result, particularly when it comes to building and insurance.
The Insurance Council of Australia said this week that about 108,000 claims have been lodged over the floods in NSW and south-east Queensland, estimated to be worth $1.62 billion.
But some analysts see the cost of insurance claims rising to $3 billion.
Already extreme weather events, higher building material costs, labour shortages have seen insurance costs jump by over 7% in 2021, and now analysts are predicting that it could go to 10% in the 2022 financial year and possibly even higher in 2023.
The cost of insurance is likely to rise for everyone but particularly for those in high risk areas.
Some food for thought when it comes to buying property today:
1. Do you research on risk. Consider using this map which looks at flood risk and tidal surges
2. Google your local council for a map on bushfire prone areas
Higher insurance premiums are expected not just because of recent severe weather events, but also the impact of COVID-19 affecting building costs and now higher fuel prices due to Russia’s invasion of the Ukraine.
What’s covered by insurance policies varies wildly between insurers because definitions of events including flood, rainwater runoff and wind damage are not standardised.
In its report, Standardising General Insurance Definitions, FRLC found 65% of the insurers it examined considered flood and storm to be separate events but the rest lumped them in together. Some insurers also included wind, hail, rain and cyclone under the definition of storm but others did not.
This means that thousands of victims of the floods in New South Wales and Queensland will be unable to claim on their insurance due to exclusions in policy fine print, according to the Financial Rights Legal Centre.
As it stands, our insurers are well placed to pay out premiums but should they be unable to in the future, they would not be covered by the federal government natural disaster fund, like the proposed $10 billion cyclone reinsurance pool for northern Australia – which is currently before the Senate.
Put simply floods are not cyclones, and the latter has historically been the more frightening given its seasonal regularity compared to “1 in 100 year” forecasts for floods.
But climate change is changing everything. As the last two years of La Nina – wetter than normal weather conditions – have show, the way we think about 1 in a century floods needs a review. Should it be one in 20 years? Or indeed one in five?
The other issue is building standards. How many times can we keep rebuilding and developing in areas where local government building requirements are not keeping up with these extreme weather events?
Planning controls and building codes need an urgent review to protect homeowners from floods by not allowing new homes to be developed on known flood plains or raising the height requirements for existing buildings in these areas.
Financy helps women become financially fearless and while we’re at it, we ensure that our members – individuals and organisations – are part of the solution to gender financial equality. Subscribe for FREE to our newsletter or dial things up a notch with a Financy Membership.