This article is more than 6 years old

This article is more than 6 years old

Buyers must beware as climate change threatens to increase insurance premiums and lower property values, Australia’s Climate Institute and the consumer watchdog Choice have warned.



Extreme weather risk and climate events could lower property values in some areas by 20% or more, and double the cost of insurance premiums, within the space of one mortgage term, a report released on Thursday said.

“Climate change will make a bad situation worse,” it said, listing extreme weather events including floods, storms, fires and coastal soil erosion.

Because developers are not obliged to ensure new dwellings are built to resist future climate and weather hazards, and governments are sometimes failing to make risk information easily accessible, insurers have been increasingly exposed, leading to more expensive premiums, the report said.

“Climate projections clearly indicate that some risk factors will evolve substantially over the typical 30-year term of a mortgage,” it said. “It is reasonable to assume that some of these changes will be reflected in even higher insurance premiums for properties already exposed to extreme weather risks.”

Houses affected by extreme weather events, such as the Queensland floods of 2011, are also left underinsured when faced with expensive rebuilding regulations. In areas examined, the study found replacement values of buildings were up to 95% higher than their value.

The organisations said the lack of information from governments and insurance companies was leaving homebuyers and owners at risk.

“Councils should be providing better information about historical climate data about whether a property is at risk, and what they think about some of the future risks might be,” the Climate Institute’s chief executive, John Connor, told Guardian Australia.

“And there are some basics, such as the full range of hazard mapping, that we know some local governments have got and which should be publicly available. But they’re not,” he said.

Until buyers are assured all information is being given to them, there are a number of measures they can take for themselves, the report said.

A clue is whether or not an insurance company offers online quotes in the area the consumer is looking at. It said a range of quotes being offered in low-risk areas, but not high-risk areas, is a consistent occurrence.

“In half of the tested locations that are at high risk from weather events, one or more insurers declined to make online quotes available,” the report said.

“In some locations, the companies refusing to do so include four of Australia’s six major insurers. By contrast, in a control sample containing only low-risk homes, refusal of online quotes was never observed.”

Connor said this pattern of unavailable quotes was “a very good indicator for people to be aware of”.

The report made a number of recommendations to buyers, insurers and governments, including mandated disclosure of all available hazard mapping.

The Insurance Council of Australia (ICA) agreed with some recommendations to governments, but not those to insurers, which included adding “policy options to include climate-exacerbated risks including erosion, soil contraction and actions of the sea”.

“Our overall view is the ICA sees the climate risk report as further evidence of the link between risk exposure and risk-based premiums,” a spokesman for the ICA, Campbell Fuller, told Guardian Australia.

“We also agree that there is some benefit to consumers from disclosing risks from extreme risks and anticipated climate change.”

However, the council disagreed with the recommendation the government “disclose current and projected insurance premiums for a property at the point of sale, based on independent metrics (such as those presented in this report)”.

“The commercial nature of insurance means that insurers will use a number of different criteria when pricing a product. To try and anticipate what a premium will be is incredibly difficult because there are too many criteria being used,” Fuller said.

“Consumers in high-hazard areas should be presented with information on hazards and any planned mitigation. And they should then seek out and receive professional advice on their insurance options.”