The escalating cost of home insurance premiums is causing distress among homeowners in flood-prone areas of Sydney, as insurance companies grapple with the increased risk of natural disasters. The situation has reached a crisis point for many, including Scott Hinks, a resident of Windsor in Western Sydney, whose home narrowly escaped damage during the last major flood in July 2022.
Hinks was left in shock when his insurance provider informed him that his home and contents cover would not be renewed. The news triggered a physical reaction akin to the stress of an Ironman competition. “Your mind races to your family, your livelihood. But above all, you worry about your home – the castle that shelters everything you hold dear,” Hinks said.
In 2020, Hinks paid $1,216 for his home and contents cover. However, following the floods, his premium soared to $3,953 per year last October. Now, his insurance company has withdrawn their coverage altogether. In his search for a new provider, Hinks received a quote from NRMA for an astounding $31,969 per year – a figure far beyond the reach of the average Australian homeowner.
This alarming rise in insurance premiums is not unique to Hinks. It’s a nationwide issue, driven by consecutive years of natural disasters. Research conducted for the Actuaries Institute reveals a median increase of approximately 28 per cent in just one year.
Sharanjit Paddam, co-author of the report, estimates that about 1.25 million households are now grappling with home affordability insurance stress – defined as premiums costing more than one month’s annual income. Paddam explains that the steep increase is partly due to the higher costs of rebuilding a damaged home, with labour and materials becoming more expensive. However, the increased risk of natural disasters is also a significant factor.
Australia’s escalating cycle of natural disasters, including the floods and the 2020 Canberra hailstorm, have made the country a risky proposition for reinsurers. “The statistics show reinsurers have been losing money for five out of the last six years,” Paddam said. “They’re now hiking their reinsurance costs to at least break even. Most insurers pass these costs down to those causing the risk.”
Western Sydney is considered the highest risk area in the country, likened to a bathtub due to its topography. A catastrophic flood could submerge thousands of homes up to their rooftops. The Insurance Council of Australia warns that a major flood could displace an estimated 300,000 people. This risk is reflected in insurance premiums, as demonstrated by Warren and Carole Goldsworthy, whose home and contents premium jumped from $3,800 to $6,500 per year in 12 months.
Robyn Preston, NSW Liberal MP for Hawkesbury, represents one of the most flood-prone communities in the nation. She reports that many of her constituents have been denied insurance or find it prohibitively expensive. Preston suggests a potential solution could be a form of limited emergency cover, such as a one-off payment for clean-up and recovery following a flood.
As a Sydney Buyers Agent and a Northern Beaches Buyers Agent, we understand the concerns of homeowners and potential buyers in these high-risk areas. It’s crucial to get help buying in Sydney, especially in flood-prone regions. A Lower North Shore Buyers Agent can provide invaluable advice and assistance in navigating these complex issues.
This escalating insurance crisis underscores the need for innovative solutions to support homeowners in flood-prone areas. As the risk of natural disasters continues to rise, so too does the urgency of addressing this issue.