the bill for a warming world is landing not in distant futures
but in this year's insurance renewal notice.
| Key Points |
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The envelope arrived in January, as it always does, bearing the name of a well-known insurer and the quiet menace of an annual renewal.
For a homeowner in Townsville, north Queensland, the figure inside had risen again, this time by more than 20 per cent on the previous year.
She had not made a claim. Her house had not flooded.
But the wet season had been brutal elsewhere in the region, and the insurer's algorithms had recalculated her risk along with everyone else's.
She is not alone, and her experience is not unusual.
Across Australia, the intersection of a warming climate and a hardening global insurance market is producing costs that are beginning to exceed what ordinary households can bear.
The story of climate change and insurance is, at its core, a story about who pays for a problem they did not cause and whether the structures that once protected Australians from disaster can continue to do so.
A Record of Losses
In 2022, major floods inundated much of eastern Australia's coastline and river plains, triggering insured losses of $7 billion, almost double the previous record. 1
That single year's bill reshaped the pricing decisions of every major insurer operating in the country.
Between 2022 and 2023, the average home insurance premium in Australia rose by 14 per cent, the largest single-year increase in a decade. 1
The McKell Institute has modelled that the direct cost of natural disasters in Australia could reach $35 billion per year in 2022 dollars by mid-century, an average of more than $2,500 per household per year. 1
Yet averages, as actuaries are fond of noting, conceal more than they reveal.
For households in high-risk flood zones, cyclone corridors or bushfire-prone valleys, insurance costs are already multiples of the national average.
The 2019-20 summer, remembered as the Black Summer, saw general insurers pay out $3.89 billion across more than 300,000 claims from bushfires, floods and storms. 4
Since 2013, insured losses in every single year have exceeded the combined losses of the five years from 2000 to 2004. 1
The trend is not cyclical.
It is structural.
The Reinsurance Transmission Belt
To understand why premiums rise even for households far from the most recent disaster, one must understand reinsurance, the system by which insurers themselves buy insurance against catastrophic losses.
Global reinsurers, having absorbed mounting losses from extreme weather events across Europe, Asia and the Americas, have tightened their pricing and reduced their capacity. 7
This global hardening transmits directly into Australian premium pricing.
Higher costs for reinsurance mean that primary insurers, the ones who sell policies to homeowners, must charge more, or accept losses they cannot sustain.
The Australian Prudential Regulation Authority's data shows that housing insurance underwriting has been unprofitable since 2019-20. 1
This is a critical finding, because it dispels any simple narrative about insurer profiteering.
Premiums are rising not because companies are extracting excess margins, but because the underlying risk has genuinely, materially increased.
Building cost inflation, driven by post-pandemic supply chain pressures, accounts for roughly half of recent premium increases in isolation, but when compounded with climate-driven catastrophe frequency, the combined effect has been severe. 8
Sharanjit Paddam, Principal in Climate Analytics at actuarial firm Finity and one of Australia's most cited researchers on insurance affordability, has described the feedback loop clearly: worse climate events lead to higher reinsurance costs, which lead to higher premiums, which lead more households to drop cover, which concentrates risk further among those who remain insured.
The Affordability Precipice
In the year to March 2023, median home insurance premiums rose by 28 per cent to $1,894, with properties in the highest-risk zones — flood-prone areas, bushfire corridors — recording increases of 50 per cent. 8
By March 2024, the share of households in what researchers term "affordability stress", spending more than one month's gross income on home insurance, had risen to 15 per cent, up from 12 per cent the previous year. 2
That equates to 1.6 million households, up from 1.24 million twelve months earlier. 2
For those households, insurance costs average 8.8 weeks of income, more than seven times the national median. 8
As of 2023, one in 20 Australian households was underinsured, and about one in 30 had no insurance at all. 9
That equates to more than two million people living without adequate cover in a country that experiences some of the world's most destructive climate events.
A 2025 Climate Council poll found that 46 per cent of Australians with home insurance reported that extreme weather had already increased their premiums, while 54 per cent feared that cover would become unaffordable or unavailable in their location. 9
In 2025, Australians paid up to $700 more for home and contents premiums than in 2024. 9
The Geography of Risk
The premium map of Australia increasingly reflects its climate map.
In north Western Australia, average home and contents premiums now exceed $4,600 per year. 3
In the Northern Territory and north Queensland, average premiums exceed $3,000 per year, more than 60 per cent above the national median. 3
Strata insurance in north Western Australia averages more than $18,000 per policy, an increase of 18 per cent in a single year. 3
The Queensland state is deemed the most at risk of an imminent insurance crisis, with five of the ten most vulnerable areas nationally located there. 4
Rural and remote communities face additional challenges that compound the raw premium cost.
Sparse infrastructure means that when disaster strikes, rebuilding takes longer, builders charge more for remote work, and supply chains are less resilient.
Indigenous communities, which are disproportionately located in remote and climate-exposed regions, face the intersection of geographic risk, limited market competition and historical underinvestment in mitigation infrastructure.
Lower-income households more broadly tend to live in higher-risk areas precisely because land in those areas has historically been cheaper, a pattern that climate change is now converting into a trap, as Finity's Paddam has observed in his affordability research. 10
The Cyclone Pool: A Partial Remedy
In response to the acute affordability crisis in northern Australia, the federal government established the Cyclone Reinsurance Pool in 2022, administered by the Australian Reinsurance Pool Corporation and backed by a $10 billion government guarantee. 11
The pool provides reinsurance to insurers for cyclone and related flood damage without a profit margin, reducing the cost of reinsurance that insurers pass on to consumers.
By the time all large insurers had joined by the end of 2023, the pool had begun to deliver modest relief.
The ACCC's fourth annual insurance monitoring report found that average premiums in medium to high cyclone risk areas decreased by 11 per cent compared to pre-pool pricing, with the most prominent reductions in Mackay, Cairns and Townsville, where median premiums fell by approximately 15 per cent. 3
However, the pool's limitations are significant and well-documented.
RACQ, a major Queensland insurer, reported that one in two cyclones over the preceding 40 years would not have been substantially covered by the pool as designed. 12
The National Insurance Brokers Association has noted that the pool fails to address insurance-based taxes, with Queensland alone expected to collect more than $2 billion in stamp duty from insurance premiums by the 2027-28 financial year. 13
Taxes of this kind can add up to 18 per cent to premium costs, a burden that disproportionately falls on those in highest-risk areas. 7
The cyclone pool illustrates both the potential and the insufficiency of targeted government intervention.
It has helped at the margins, but the structural forces driving premiums upward are broader than any single policy mechanism can address.
Regulation, Transparency and the Limits of Markets
Insurers are under no legal obligation to explain the climate-related rationale behind specific premium increases in terms that consumers can interrogate or contest.
The result is a market characterised by opaque pricing, where households are told only the new figure, not the model behind it.
The APRA Insurance Climate Vulnerability Assessment, commenced in July 2023, represents the most systematic attempt yet to model how insurance affordability may change between now and 2050 under different emissions scenarios. 14
Its findings, which draw on the inputs of major reinsurers including Munich Re and Swiss Re as well as climate scientists, are intended to inform regulatory responses.
The Actuaries Institute has called for a comprehensive policy suite including targeted subsidies, tax reform and risk-reduction infrastructure investment to address affordability in the near term. 8
The National Disaster Risk Reduction Framework provides a policy architecture for mitigation investment, but its implementation has been uneven and its funding commitments insufficient relative to the scale of risk now being priced into insurance markets.
The Insurance Council of Australia has called for enhanced land-use planning, stricter building codes and increased investment in flood defences and home-hardening measures as structural solutions. 2
There are genuine limits to what government can do without distorting the risk signals that insurance pricing provides.
If premiums are subsidised heavily enough that they no longer reflect hazard, communities and individuals lose the financial incentive to avoid high-risk locations or invest in resilience.
Yet if premiums are allowed to rise without limit or constraint, the social consequences are severe: uninsured households, collapsed property values, stranded mortgage holders and governments forced to fund recovery from public funds without the efficiency of a functioning insurance market.
Property Values, Mortgages and the Financial System
The consequences of unaffordable insurance extend well beyond individual households.
A 2024 Climate Valuation report warned that flooding exacerbated by climate change could leave communities in Australian suburbs without access to affordable insurance or mortgage lending, services it described as critical to a functioning property market. 15
Finity research has estimated that roughly 3 per cent of Australian bank loan assets are tied to properties likely to have unaffordable insurance. 5
That equates to approximately $60 billion in loans.
Actuary Sharanjit Paddam has stated that if those loans were to fail, the outcome "would cause a severe crisis for the banking system in Australia." 5
Banks are already beginning to incorporate climate risk into mortgage lending assessments, and some are moving toward denial of loans for properties in areas where insurance is unavailable.
The risk of a contagion effect is real: as buyers discover that properties cannot be insured, sellers find themselves unable to realise value, property prices fall, and the damage spreads to adjacent areas through the mechanism of perception alone.
The Climate Council's estimate that 1 in 25 Australian properties could become effectively uninsurable by 2030, with 80 per cent of that risk attributable to river flooding, suggests the contagion could arrive sooner than most financial regulators have modelled. 4
The Algorithm and the Actuary
Climate models are now central to the actuarial forecasting that determines what households pay for cover.
Insurers are deploying AI and big data tools to price individual properties with a precision that was impossible a decade ago.
This individualised approach means that two houses on the same street can receive dramatically different premiums based on subtle differences in elevation, drainage, construction type or proximity to a watercourse. 7
The methodological sophistication is genuine and represents a more accurate translation of risk into price.
But accuracy and equity are not the same thing.
A household that finds itself in a high-risk location, not by choice but by the constraints of income, has limited ability to respond to actuarially precise pricing.
UNSW's Dr Fei Huang, a senior lecturer in risk and actuarial studies, has proposed a multidisciplinary ethical framework that draws from actuarial science, climate science, philosophy, social science and economics to assess the justice implications of insurance pricing decisions. 10
The question she poses, who bears the cost of insurance affordability, and is that distribution just?, is one that markets alone cannot answer.
New Products and the Adaptation Horizon
Industry and researchers are exploring models beyond the conventional annual premium structure.
Parametric insurance pays a predetermined sum when a specific trigger, such as a cyclone reaching a defined wind speed or a flood exceeding a certain gauge level, is met, without requiring an assessment of individual property damage. 6
Advances in satellite technology and artificial intelligence are enabling parametric products to cover risks across large areas, including farms, municipalities and coastal communities, that would be prohibitively expensive to assess individually. 6
Community risk pools, in which groups of households share risk collectively rather than purchasing individual policies, represent another model under active consideration.
The Actuaries Institute's Elayne Grace has described sustainable finance as a critical part of the solution, arguing that better data and climate risk frameworks can create pathways for households, investors, insurers and lenders that allow government to focus support on those in greatest need. 2
Insurers that offer discounts on premiums for home-hardening measures, such as cyclone-rated roofing, flood barriers or ember-resistant construction, are beginning to create financial incentives aligned with physical risk reduction.
The ARPC cyclone pool itself includes a discount mechanism for properties that implement recognised mitigation measures, though the ACCC has noted that uptake remains limited. 3
Conclusion: A Country Repricing Itself
Australia is, in the language of finance, in the process of repricing itself.
The cost of living in a place that floods, burns or blows away with increasing frequency is being written, line by line, into the insurance contracts that underpin the country's housing system, its banking system and its social fabric.
The process is not orderly, and it is not equitable.
Those least responsible for the emissions that have accelerated this risk are, in many cases, bearing the highest costs: residents of northern Queensland, remote Indigenous communities, lower-income households in flood-prone areas on the urban fringe.
The federal cyclone pool is a meaningful but insufficient intervention.
Tax reform, land-use planning, building standards and sustained infrastructure investment in risk reduction are the structural levers that can change the trajectory, but they require sustained political commitment that has so far not materialised at the necessary scale.
If emissions trajectories do not change markedly, the McKell Institute's projection of $35 billion in annual natural disaster costs by mid-century will render parts of the country not merely expensive to insure but simply uninsurable in the conventional sense.
Insurance is a mechanism for sharing risk across time and across populations.
When risk becomes certainty, insurance ceases to function.
The question Australia faces is not whether climate change is repricing its housing stock - it already is - but whether policy, innovation and collective will can keep enough of the country within the boundaries of insurability to prevent the kind of cascading failures that would leave the most vulnerable households, and ultimately the broader economy, without the buffer that insurance has always provided.
The renewal notice will keep arriving.
The only question is whether Australians will be able to afford what is inside.
References
- The Australia Institute (2024) — Premium Price: The Impact of Climate Change on Insurance Costs
- Insurance Business Australia (2024) — Soaring Premiums Push 1.6 Million Aussie Households into Insurance Crisis
- ACCC (2025) — Cyclone Reinsurance Pool Lowering Premiums in High Risk Areas but Affordability Concerns Remain
- World Economic Forum (2022) — Climate Change Is Causing an Insurance Crisis in Australia (citing Climate Council, Uninsurable Nation)
- Green Central Banking (2025) — Australia's Insurance Gap Is a Risk to the Financial System
- World Economic Forum (2025) — How Parametric Insurance Is Building Climate Resilience
- UNSW BusinessThink (2024) — Factors Behind Home Insurance Premium Increases, Dr Fei Huang
- Insurance Business Australia (2023) — The Home Insurance Affordability Stress Facing Australian Households (Actuaries Institute / Finity)
- Climate Council (2025) — New Poll Reveals Climate Stress Hitting Aussie Homeowners
- UNSW BusinessThink (2024) — Home Insurance Is on the Rise. Is There an Affordable Solution?
- Australian Reinsurance Pool Corporation — The Cyclone Pool
- RACQ (2025) — Opening Statement to the Cyclone Reinsurance Pool Public Hearing
- NIBA (2025) — NIBA Responds to ACCC Cyclone Reinsurance Pool Insurance Monitoring Report
- APRA (2024) — Insurance Climate Vulnerability Assessment
- Green Central Banking (2025) — Australia and NZ Face Home Insurance Crisis Due to Climate, Experts Warn
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