Affordable and widely held home insurance supports a resilient and productive economy by protecting households against large and unexpected financial losses, enabling them to recover quickly after shocks. This assessment explores how a changing climate could affect home insurance affordability in Australia and the insurance protection gap over coming decades. The home insurance protection gap refers to the extent to which losses impacting homes are not covered by insurance.

The assessment examined how home insurance coverage may fall under two severe but plausible global climate-related scenarios projected out to 2050: one with higher physical risks from weather-related events and one with greater economic impacts from transitioning to a lower emissions economy. Under both scenarios, it found that climate-driven pressures on insurance premiums could significantly widen the nation’s insurance protection gap, thereby increasing financial risks to the system.

Key findings

• One in seven Australian houses are uninsured today. Under both stress scenarios this could rise to around one in four by 2050.
• Regional and rural communities would be disproportionately affected.
• Different climate risk-related factors drive the widening protection gap under each scenario.
• A widening protection gap could increase uninsured losses for households, heighten credit risk for banks, particularly in high-risk regions, and constrain growth in the home insurance market.