The Growing Risk of Uninsurable Properties in Australia

Australia’s climate is changing, and with it, the risks associated with extreme weather events are increasing at an alarming rate. From devastating bushfires to severe floods and cyclones, the nation is grappling with a growing number of natural disasters that are having a profound effect on homeowners and insurance companies alike.

In recent years, the frequency and intensity of extreme weather events have surged, and this shift is causing a ripple effect across various industries. One of the most concerning impacts is the rising difficulty for homeowners and businesses in certain areas to secure adequate insurance. A growing number of properties, particularly those located in high-risk zones, are becoming "uninsurable” due to rising costs or removal of certain coverage. This trend poses serious challenges for property owners and the broader economy, and it highlights the urgent need for proactive solutions.

The Impact of Extreme Weather on Insurance

Insurance is a cornerstone of financial security for homeowners, offering peace of mind in the event of a disaster. However, as the frequency of catastrophic weather events continues to rise, insurers are increasingly assessing the level of risk associated with covering certain properties. The more likely a home is to be damaged or destroyed by floods, fires, or storms, the less willing insurers are to offer coverage.

In areas that are more vulnerable to extreme weather, such as those near bushfire-prone forests or floodplains, property owners are facing the reality of higher premiums or, in some cases, being unable to secure any insurance at all. In the case of Los Angeles, tens of thousands of homeowners where declined fire insurance in the year leading up to the catastrophic fires. Many of these homeowners lost everything and face a dauting task of rebuilding.

The increased risk associated with such locations has led many insurance companies to withdraw from the market or drastically reduce their coverage options. This trend is not only worrying for property owners but is also a significant concern for the long-term stability of the housing market in these regions.

Bushfires and Floods: The Two Major Culprits

Two of the most prominent climate-driven risks that Australians face are bushfires and floods. Bushfire seasons have grown longer and more intense, while recent floods have wreaked havoc on communities, leading to widespread damage and loss of life. These extreme events have created a perfect storm for the insurance industry, where increasing payouts for claims make it difficult to sustain affordable premiums.

In bushfire-prone regions, insurers have responded by either hiking premiums or completely pulling out of the market. Areas like New South Wales, Victoria, and Queensland are particularly vulnerable, with entire communities finding themselves without coverage as insurers become wary of the heightened risk. Additionally, the aftermath of catastrophic bushfires often leaves affected property owners in limbo, struggling to rebuild due to the high cost of insurance or the inability to secure new policies.

Similarly, flood risks are escalating due to changing rainfall patterns and rising sea levels. Once-in-a-century floods are becoming more frequent, and with it, the potential for widespread damage to properties. This increasing unpredictability makes it difficult for insurers to assess risks accurately, resulting in premiums soaring or policies being cancelled altogether. As the risk of both floods and fires escalates, more property owners are faced with the prospect of uninsurable structures.

The consequences of uninsurable properties are profound. Not only do they leave owners vulnerable to financial ruin in the face of a disaster, but they also impact the property market. Homes in high-risk areas lose their value when insurance becomes unavailable or unaffordable. The ripple effects can be seen in declining property prices, which can, in turn, lead to movement of people to other areas, which has economic impacts to the entire area.

Communities in affected areas may find themselves trapped in a cycle of decline, unable to rebuild or protect themselves from future events.

The California Fires as a Wake-Up Call

The recent Californian fires highlight emerging risks associated with out-of-season fires and the alarming speed at which embers can spread, endangering vulnerable areas. Traditionally, California’s fire season peaks in late summer and autumn, but recent blazes have increasingly occurred outside these months, exacerbated by prolonged droughts, heatwaves, and shifting climate patterns.

These out-of-season fires have caught communities off-guard, with dry vegetation and strong winds creating perfect conditions for rapid fire escalation. A significant concern is the ability of embers to travel long distances sometimes several kilometres driven by high winds. These embers ignite spot fires in suburban and urban areas previously considered low-risk, overwhelming firefighting resources and endangering lives and property.

These fires underscore the urgent need for year-round preparedness, more robust building codes, and proactive fire prevention measures. They also emphasise the growing challenge of protecting communities as climate change extends fire seasons and increases the unpredictability of fire behaviour.

Questions to Ask

What is our emergency response plan?

• ‍‍Do we have a clear, actionable plan for natural disaster scenarios?
• How often do we review and test this plan with staff and stakeholders?

Do we have adequate insurance coverage?

• Is the business insured against climate-related damages, including out-of-season events?
• Have we assessed whether our insurance premiums might increase or become unavailable?

How will we maintain continuity during and after a disaster?

• Do we have backup systems for critical operations (e.g., data storage, communications)?
  Can our business operate remotely if physical locations are affected?

How might climate change impact our financial performance?

• Could increased operational costs (e.g., higher insurance, energy, or repair expenses) affect profitability?
• Are we prepared for potential disruptions to revenue streams due to climate impacts?

Are we factoring climate risks into long-term business strategy?

• Have we adjusted growth plans or investment strategies to account for climate risks?
• Are we diversifying our markets or offerings to reduce dependency on climate-sensitive areas?

How transparent are we about climate risks and actions?

• Are we clearly communicating our climate risk assessments and mitigation strategies to stakeholders?
• Do we meet industry standards for climate-related disclosures and reporting?

Can we innovate to adapt to new climate realities?

• Are there opportunities to develop or adopt technologies that enhance resilience (e.g., fire-resistant materials, flood defences)?

By addressing these questions, businesses can better prepare for the challenges of a changing climate, safeguard their operations, and demonstrate leadership in the face of emerging climate risks.