Photo: NOAA
Insurance costs are soaring for home owners in Australia and New Zealand as climate change leads to floods, fires and storms, pushing up inflation and threatening financial stability, experts say.
Homeowners in riskier parts of Sydney face insurance premiums over three times higher than in other regions, according to insurance consultancy Finity.
Finity principal Stephen Lau said the average premium across greater Sydney has jumped by 66% since 2020. Floods in eastern Australia in 2022 were one of the country’s most expensive disasters in the past 50 years.
“As premiums rise and coverage is withdrawn from high-risk areas, we can expect to see impacts on asset prices and the prosperity of communities,” said Philip Tapsall, head of corporate and finance sector engagement at climate risk experts XDI. “Without stronger action to reduce emissions and build resilience, we could see this have implications for financial stability.”
The Insurance Council of Australia says insurance claims from catastrophic events have risen by nearly 50% in the past five years, while around 1.2mn properties are at risk of flooding. The costs of extreme weather are expected to grow from A$4bn per year to $8.7bn by 2050.
Meanwhile, the insurance industry in New Zealand is raising concerns that property values could decline if more homes become uninsurable, potentially affecting the broader economy.
The impact of climate change on insurance markets has been systematically underestimated, with implications for financial stability, said Professor Ilan Noy, chair in the economics of disasters and climate change at Te Herenga Waka, Victoria University of Wellington, in an article for Green Central Banking.
The Australia Institute research body says climate change is driving a huge increase in the cost of insurance with premiums massively outpacing price rises for most other goods and services.
The institute said Australians claimed more than $7bn on their home insurance in 2022 – almost double the previous record – after a string of major floods. In response, home insurance premiums rose by at least 14% on average, the biggest rise in a decade.
“Rising insurance premiums are the here and now cost of climate change,” said Stephen Long, senior fellow at the Australia Institute. “Impacts from climate change are non-linear. They are catastrophic in nature and traditional, linear insurance models of calculating and spreading risk are no longer fit for purpose.”
Homes at risk, insurance policies withdrawn
The insurance industry in New Zealand notes that insurers are shifting toward property-specific risk pricing, which might mean that more homeowners may find it difficult to obtain coverage.
New Zealand’s largest insurer IAG said in 2023 it will not issue new insurance policies on flood-prone and landslip-threatened homes after damage from serious flooding and a cyclone. IAG says that 1% of homes across the country, equivalent to around 20,000 homes, are at risk of severe flooding,
Climate Valuation, which assesses the risks of climate change to residential property, sees the same problems for Australia.
“Flooding exacerbated by climate change could result in communities in Australian suburbs being left without access to affordable insurance and/or mortgage lending – services critical to a functioning property market,” according to a 2024 Climate Valuation report.
US insurance company Marsh McLennan estimates that 18% of the global population is currently threatened by flooding, with that figure set to double even if global warming is limited to 2°C. Only 17% of global economic losses were insured between 2007 and 2021.
XDI’s Tapsall called on regulators to make sure there is an orderly response to the challenge.
“They need to work with stakeholders from the financial services sector and affected communities on frameworks that lead to investment in adaptation and mitigation – not divestment and decline,” he said.
Climate Valuation said Australian regulators must make insurers commit to providing affordable cover for the life of a mortgage so that homeowners are not left stranded, or make it clear that the risks make this untenable.
It also calls for regulation of insurers and banks to make sure they inform existing or prospective clients of extreme weather and climate change risks to properties of interest.
In New Zealand, a climate adaptation bill is expected to be introduced later this year.
A survey commissioned by the Insurance Council of New Zealand (ICNZ) found 49% of respondents believe the government should do more to safeguard lives and properties.
“By investing in solutions to mitigate and adapt to the changing climate and reduce risk, we can safeguard New Zealanders, reduce the costs to taxpayers and ratepayers, and keep insurance affordable and accessible,” ICNZ chief executive Kris Faafoi said.
This page was last updated March 31, 2025
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Emma Thomasson is a British journalist, consultant and trainer based in Berlin. She is an expert in economics, politics, business and technology. She previously worked for Reuters as a correspondent and bureau chief in Germany, Switzerland, the Netherlands, South Africa and the UK.
