When insurance becomes a climate faultline: how global heating is reshaping Australia’s safety net - Lethal Heating Editor BDA

Key Points

Extreme weather in 2025 caused about $3.5 billion in insured losses across Australia.1 Home insurance premiums have surged, with 1.24 million households now facing acute affordability stress.2 Climate change is driving heavier downpours, harsher fire weather and more intense tropical cyclones, increasing loss risks.3 A Senate inquiry has warned that some communities face uninsurability without stronger mitigation and planning reforms.4 Government schemes such as the cyclone reinsurance pool and Hazards Insurance Partnership aim to curb premiums in high‑risk areas.5 Insurers are reshaping products, data and capital to cope with mounting climate risk and guide adaptation.6

Insurance used to sit quietly in the background of Australian life, a renewal notice paid and forgotten, but climate change has pushed it to the centre of a national cost and security crisis.¹

In 2025 the Insurance Council of Australia (ICA) reported that extreme weather disasters generated nearly $3.5 billion in insured losses, from roughly 264,000 claims across the country.¹

That bill was driven by cyclones, floods and storms, led by Ex‑Tropical Cyclone Alfred in March, which alone accounted for more than $1.5 billion in insured losses and over 130,000 claims.¹

By mid‑2025 three declared disasters had already produced more than $1.8 billion in claims, underlining how quickly the climate‑charged damage tally is rising.²

As payouts escalate, premiums have surged, with new Actuaries Institute analysis showing average home insurance costs jumping 28 per cent in the year to March 2025, to $1,894, and the highest‑risk properties up by around 50 per cent.³

About 1.24 million households are now in “affordability stress”, spending roughly nine weeks of income on home insurance, concentrated in flood and cyclone‑exposed regions of northern Queensland, the Northern Territory and northern New South Wales.³

Behind these numbers sits a deeper structural faultline, as government, regulators and the industry grapple with the risk that entire postcodes – and eventually whole regions – could become functionally uninsurable in a warming world.³

Climate signals behind the loss surge

The escalation in losses is anchored in observed climate trends, not just bad luck from a run of wet or windy years.⁴

CSIRO’s latest State of the Climate findings show Australia has warmed by more than 1.4 degrees since 1910, with more frequent extreme heat and more intense short‑duration heavy rainfall events, even in regions where average rainfall is flat or falling.⁴

Those downpours drive flash flooding in cities and regional towns, overwhelming stormwater systems and inundating homes and businesses that were never mapped as high‑risk when they were built.⁴

Fire weather has become more severe with a longer fire season across much of southern and eastern Australia, compounding insurance exposure by stacking bushfire risk on top of flood and storm losses.⁴

CSIRO and the Bureau of Meteorology project that tropical cyclones may become less frequent overall but more intense on average, with higher rainfall rates and storm surges due to rising seas, which can produce higher loss events when they make landfall.⁴

This shift is already visible in claims data, with the ICA noting that Alfred’s 2025 deluge, and a series of East Coast storms and floods, fitted the pattern of slower‑moving, wetter systems delivering outsized damage over large catchments.¹

For insurers and reinsurers, the result is a step change in the expected frequency and severity of losses, forcing a rapid repricing of risk and raising hard questions about what remains insurable on commercial terms.¹

Premium pain and the edge of uninsurability

The human face of this repricing is a swelling cohort of households for whom comprehensive cover is either barely affordable or out of reach altogether.³

The Actuaries Institute’s 2025 home insurance affordability update estimates that 12 per cent of households – around one in eight – are now experiencing “extreme affordability pressure”, up from 10 per cent a year earlier.³

On average these households spend 8.8 weeks of their income on home insurance, but the burden is far higher in the most exposed riverine floodplains and cyclone belts, where premiums for some properties have doubled or more in recent years.³

Earlier modelling for the New South Wales Government highlighted that inland towns with combined flood exposure and lower incomes – including parts of the Northern Rivers and central west – are now hotspots for underinsurance and non‑insurance.⁵

The NSW climate risk analysis found vulnerable households in northern Queensland, the Northern Territory and northern New South Wales were disproportionately likely to face affordability problems, especially where old housing stock and inadequate mitigation compound climate hazards.⁵

Without intervention, the Actuaries Institute warns that climate change and shifting exposure could push many more properties into the highest‑risk, highest‑premium categories over coming decades, deepening what it calls an “insurance protection gap” between rich and poor communities.³

This raises the spectre of effective uninsurability, where cover technically exists but at prices far beyond the reach of average households, depressing property values and undermining access to finance in those areas.³

Senate inquiry: climate risk as a systemic threat

These pressures prompted the Senate in 2024 to establish a Select Committee on the Impact of Climate Risk on Insurance Premiums and Availability, tasked with examining whether parts of Australia are drifting towards an uninsurable future.⁶

The committee, which tabled its final report in November 2024, heard extensive evidence from disaster‑affected communities, consumer groups, industry and experts about the intersection of climate change, planning decisions and insurance markets.⁶

Submissions highlighted that insurance unaffordability is not confined to cyclone‑exposed northern coasts but is emerging across floodplains, bushfire‑prone peri‑urban fringes and erosion‑threatened coasts, where legacy planning rules allowed high‑risk development.⁷

The Housing Industry Association, for example, told the inquiry that governments must do more to retrofit existing homes for natural hazards and reconsider where rebuilding occurs after repeat disasters, rather than simply shifting costs to new home buyers.⁷

Actuarial evidence to the inquiry underscored that climate‑driven natural peril risks are a substantial and rising component of premiums, with the heaviest burden falling on a relatively small share of households in high‑risk locations.³

The committee’s report called for better data on insurance affordability and availability, targeted mitigation funding, and exploration of tools such as means‑tested subsidies or risk‑based stamp duty reform to ease pressure on low‑income households in high‑risk zones.⁶

Its findings sit alongside an Australian Prudential Regulation Authority (APRA) climate vulnerability assessment, which is building an affordability metric in “weeks of income” to track how climate and transition risks could reshape general insurance markets by 2050.⁸

Government interventions: reinsurance pools and partnerships

In response to mounting concern, federal policy has begun to move from crisis‑by‑crisis disaster relief towards more systematic efforts to stabilise premiums and reduce risk.⁹

Central to this is the cyclone reinsurance pool, operated by the Australian Reinsurance Pool Corporation (ARPC) and backed by a $10 billion government guarantee, which allows insurers to transfer cyclone and cyclone‑related flood risk to the public balance sheet.⁹

The pool covers household, strata and small business property policies nationwide but targets support to cyclone‑prone regions, and has been fully operational since January 2025, with all large insurers on board and smaller insurers joining in line with reinsurance renewals.¹⁰

Early data from Far North Queensland indicates that around 78 per cent of households hold home insurance, and ARPC plans to use the pool’s granular data to track coverage and affordability over time in high‑risk regions.¹⁰

Alongside the pool, the Albanese government has set up the Hazards Insurance Partnership (HIP), an enduring forum between government and major insurers, managed by the National Emergency Management Agency.¹¹

The partnership is designed to share data on natural hazard risk, co‑design mitigation priorities and provide transparent updates on measures to improve insurance affordability and availability in exposed communities.¹²

The 2024–25 federal budget also allocated additional funding to disaster resilience, including the Disaster Ready Fund and targeted resilience programs, which are intended to complement insurance measures by cutting physical risk rather than merely subsidising prices.¹³

Advocates argue that every dollar spent on risk‑reducing infrastructure, such as levees, buybacks, house raising or fire‑resistant retrofits, can save many times more in avoided disaster losses and help bring premiums back within reach over time.⁵

How insurers are adapting to a riskier climate

While governments adjust policy levers, insurers themselves are reshaping products, capital and data to live with a more volatile climate.¹⁴

KPMG’s 2025 general insurance insights report notes that strong growth in gross written premiums has been driven partly by higher rates reflecting worsening natural disaster risk, rising reinsurance costs and ongoing supply chain pressures in rebuilding and repairs.¹⁴

Insurers are experimenting with more granular risk‑based pricing, using improved flood and cyclone models, property‑level data and remote sensing to distinguish between homes on the same street with markedly different hazard profiles.¹⁴

Many insurers are also refining underwriting rules, tightening coverage in repeated‑loss locations, increasing excesses for some perils, or in some cases declining cover where they judge the risk as beyond tolerable bounds.¹⁴

At the same time, the industry is under pressure from regulators and investors to decarbonise its own portfolios, disclose exposure to climate risks, and support resilience measures that can reduce long‑term claims costs.⁸

Insurers are working with governments through HIP and other forums to link premium discounts to mitigation – for example, lowering premiums for homes elevated above projected flood levels, re‑roofed to cyclone standards or retrofitted with ember‑resistant features in bushfire zones.¹²

Industry action plans released in response to inquiries into the 2022 floods outline commitments to improve claims handling, invest in community engagement and support better land‑use planning so that future development avoids the worst hazards rather than locking in new pockets of high risk.¹⁴

What planners and policymakers must do next

Insurance is ultimately a signal, not a solution, and the signals from 2025’s loss data and 2026’s early disasters are stark.¹

To preserve insurance as a functioning safety net, regional planners and policymakers will need to focus on four core tasks: 

• Stop putting new assets in harm’s way, 
• Aggressively reduce risk to existing homes and infrastructure, 
• Target support to affordability‑stressed households in high‑risk areas, and 
• Align emissions cuts with adaptation so that today’s hazards do not become tomorrow’s uninsurable extremes.³

That means: 

• Tightening planning controls in floodplains, firegrounds and eroding coasts, 
• Accelerating buybacks and relocations in the most exposed pockets, and 
• Embedding resilience standards in building codes and retrofits at scale.⁷

It also requires: 

• Stable, long‑term funding for mitigation infrastructure, 
• Robust data on insurance availability and affordability, and 
• Social policies – from targeted subsidies to consumer protections – that ensure low‑income and regional households are not left without cover as climate risks rise.⁵

If those steps are taken, insurers can continue to pool and price risk, communities can rebuild with more confidence, and the country can avoid a slide into patchwork “insurance deserts” where the impacts of global heating are carved into the housing market as clearly as any flood line.³

References

1. Insurance Council of Australia data on 2025 extreme weather losses (via Artemis)
2. Insurance Council of Australia: Extreme weather losses in 2025 exceed $1.8 billion
3. Actuaries Institute: Home Insurance Affordability Update and Funding for Flood Costs (2025)
4. CSIRO State of the Climate 2024 – key findings summary
5. NSW Government: Rising climate risks – why accessible, affordable home insurance is under threat
6. Senate Select Committee on the Impact of Climate Risk on Insurance Premiums and Availability – Final Report (2024)
7. Housing Industry Association submission to Senate inquiry on climate risks and insurance premiums
8. APRA Insurance Climate Vulnerability Assessment – information paper (2024)
9. Australian Reinsurance Pool Corporation: The Cyclone Reinsurance Pool
10. Joint Committee on Northern Australia: Cyclone Reinsurance Pool inquiry – current situation (2025)
11. Minister for Emergency Management: Landmark partnership to improve disaster insurance
12. Hazards Insurance Partnership – Terms of Reference
13. Highlights of the 2024–25 Federal Budget and insurance implications
14. KPMG: General Insurance Insights & Analysis 2025

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