Research commissioned by the Climate Institute and the consumer group CHOICE warns that homebuyers could face big increases in insurance premiums and reduced property values due to the increased risk of extreme weather events and climate change.
The research report estimates that these risks could lead to home insurance premiums increasing by more than 100% and property values declining in some areas by 20 per cent or more within the term of a mortgage. The report states that “climate change will make a bad situation worse”, listing extreme weather events including floods, storms, fires and coastal soil erosion.
“This report warns homebuyers that they need to consider extreme weather risk and climate change very seriously,“ said John Connor, CEO of The Climate Institute. “In high-risk locations, some home insurance policies are already unaffordable and there are insurers who won’t even offer policies at all,”
“The report finds that extreme weather and climate impacts add to Australians’ cost of living, with homeowners and buyers often unwittingly caught between failures by governments and the marketplace to reveal information about the current risks and how they are projected to worsen.”
Alan Kirkland, Chief Executive of CHOICE, said it is increasingly important for consumers to factor in weather risk before purchasing a home. “If you buy in a high-risk area without knowing it, you may find that you are unable to afford insurance,” he said.
“If you already own in a high-risk area, you need to be careful about the risks of underinsurance— otherwise, you may find your insurance payout is not enough to allow you to rebuild after a major event.”
Alan Kirkland said the research report provides some tips for consumers on how to assess the level of risk of a property their either own or are considering buying. “We think the insurance industry can do more to inform home owners about climate risk and how it impacts on premiums.”
The report, titled Buyer Beware: Home Insurance, Extreme Weather and Climate Change, contains information homebuyers can use to identify insurance risks associated with properties they are considering purchasing. The lead report author, Dr Karl Mallon, said homebuyers need to be on the lookout because it is very much a ‘buyer beware’ property market. “No insurer is going to say, ‘Don’t buy there!’, so homebuyers need to do their homework,” he said.
Key findings of the report include:
- The cost of premiums in high weather-risk locations is up to 10 times that of a typical policy at locations at lower risk.
- Underinsured homeowners who suffer a major loss may receive payouts amounting to as little as half the sum required to replace their home, because new homes will have to be built to much higher standards to withstand extreme weather.
- Many insurance policies do not cover for local extreme weather risks such as coastal inundation, erosion, land-slip, and foundation damage. Yet these are some of the impacts that climate change is making worse.
The full report is available at – http://www.climateinstitute.org.au/buyer-beware.html