Australia is on the brink of an insurance crisis as home insurance premiums continue to rise, driven by an increasing frequency of natural disasters. This situation is forcing many Australians to make a difficult choice: protect their homes with adequate insurance or face the risk of being underinsured due to soaring costs. The issue has been escalating over the past decade, and recent developments suggest it is unlikely to abate soon.
In 2022, nearly one in 20 Australians experienced significant damage to their homes due to natural disasters such as bushfires, floods, and cyclones. The Climate Council has warned that over 650,000 homes are currently at high risk of damage or destruction from these events. They project that within the next 25 years, an additional 100,000 homes could join this high-risk category.
The Growing Problem of Underinsurance
According to the Household, Income and Labour Dynamics in Australia (HILDA) Survey, as of 2023, one in every 20 homes in Australia is underinsured. This means that while homeowners have some level of coverage, it is insufficient to fully rebuild their homes if necessary. In practical terms, this equates to roughly one child in every classroom not having a home to return to in the event of a disaster.
Furthermore, about one in 30 homes lack any building insurance, leaving owners vulnerable to financial ruin if their properties suffer damage. The Australia Institute estimates that the collective value of underinsured and uninsured properties is at least $119 billion. Alarmingly, about 300,000 of these homes still have mortgages attached, placing homeowners at risk of significant financial hardship.
Financial Implications and Risks
The financial repercussions of inadequate insurance coverage are severe. Homeowners who lose their homes while still paying a mortgage may find themselves burdened with debt for a property that no longer exists. Additionally, failing to maintain full building insurance could breach mortgage contracts, as banks typically require it as a loan condition.
In such cases, banks may impose forced place insurance, which is often more expensive than standard policies. Homeowners are then left to cover these inflated costs, exacerbating their financial strain. Moreover, allowing a policy to lapse can increase a homeowner’s risk profile, leading to higher premiums when they seek new coverage.
Rising Premiums and Potential Solutions
The past year has seen a significant increase in insurance premiums. In 2025, Australians paid up to $700 more for home and contents insurance compared to the previous year. Nationally, premiums rose by an average of 14 percent, with Victoria experiencing a 17 percent increase and New South Wales seeing an 18 percent hike.
Despite these challenges, there are potential solutions. A Canstar analysis revealed that by switching to more affordable insurers, households could save an average of $766 annually. Additionally, home resistance funds in New South Wales and Queensland offer financial assistance to improve property safety and reduce insurance costs.
Investments in home improvements, such as retrofitting properties in bushfire-prone areas, can also enhance safety ratings and lead to premium discounts. Spending approximately $30,000 on such upgrades can improve a home’s safety rating by up to two stars, with some insurers offering reduced premiums for enhanced disaster resilience.
Looking Ahead
The ongoing rise in insurance premiums and the increasing risk of natural disasters present a complex challenge for Australian homeowners. While the situation is dire, there are options available to mitigate the financial burden and enhance property safety. By exploring alternative insurance providers and investing in home improvements, Australians can better protect their homes and financial futures.
Victoria Devine, an award-winning retired financial adviser and host of the popular podcast “She’s on the Money,” emphasizes the importance of exploring all available options. As the founder and director of Zella Money, she continues to advocate for financial literacy and resilience in the face of economic challenges.
