The Effect of the Climate Change to Property Insurance Policies
Climate change can greatly impact insurance costs in Australia. The constant damage it brings makes certain areas uninsurable. The greater the possibility of change in the weather in a certain location can drive the insurance rates up. It means that the location projects big-scaled risks. Thus, it is inevitable to acquire higher rates if you live in areas prone to climate change.
Property Insurance Rate Correction
The uncertainty of climate change in Australia triggered a wide property market correction on par with the leading climate risk of the area. The drastic rise in insurance premiums and the growing number of uninsurable addresses will continue to escalate in the next succeeding years.
In such cases of extreme climate change in an area, insurers can either refuse to cover or the annual premium will garner an increase of an additional 1% in accordance to the cost of repairing the property. Hence, it is too much of an expense and unaffordable that makes it substantially unavailable to the residents.
Climate Change and Property Value
In the condition of a sudden weather alteration, the banks will start to evaluate mortgages that will more likely lead to a significant change in the cost. Properties accounted for as a risky location will lose a substantial amount of its property value.
The adjustment may not occur in the next decade but the prediction of these weather-related risks triggered the insurance industry to prepare for that change. The climate risk problem in the country directly affects the government, banks, mortgage lenders, homeowners and other key players. However, the Insurance Council of Australia (ICA) is not convinced that climate change will cause such a gigantic problem in the insurance industry. And that no area should be uninsurable despite the high potential of climate disruption.
Climate Risk Hotspots in Australia
There will be more than 444,000 addresses around Australia identified as risky areas. It is projected as locations that will garner unaffordable or unavailable insurance rates in the next two to three decades. Most of these locations are centred in the middle of a populated urban area. Among these capital cities, Adelaide will have the most drastic expansion or labelled as “red zones”. The significant increase in fire and drought will gain 10-fold in the premiums.
Property Insurance Cost Increase Due to Climate Change
The predicted rise in the insurance rates was based on the property damage and the overall annual cost of damage from an unpredictable weather occurrence. It covers five hazards including riverine flooding, bushfire, extreme winds, soil subsidisation, and coastal tide. Soil subsidence is accounted for since it can significantly alter the landscape of the area due to drought. Drought can cause clay soils to crack and shift that result in damaging the core foundation of the property.
The change in insurance costs is predicted in accordance with the climate condition of the specific location. Flood mapping and depths, as well as the changes of the sea level and soil type, are a few that are being considered in projecting the rates. Additionally, the age of the property, quality, design, and current condition are also computed.
The bottom line is, climate change is an uncontrollable natural disaster that can alter the face of the insurance industry. However, for insurance buyers, it is best to comprehensively assess their property and evaluate the consistency of climate change before diving into expensive insurance rates.