Climate Change Exposes Millions of Australian Homes to Financial Risk Amid Insurance Crisis

A new report has revealed the alarming financial vulnerability of Australian households in the face of climate change-induced natural disasters, with millions of homes either underinsured or entirely uninsured. The findings underscore an urgent need for reform, as rising construction costs, extreme weather events, and affordability pressures converge to widen the protection gap.

The Wealth at Risk

For the middle 20 percent of Australian households, the family home represents 74.3 percent of net wealth. If left uninsured, these households (approximately 1.95 million) stand to lose nearly three-quarters of their total wealth should their property be destroyed in a natural disaster. The poorest 20 percent are similarly exposed, with the contents of their home accounting for 51.6 percent of their net worth. Without adequate contents insurance, these households face the prospect of financial ruin.

Financial Adviser Craig Phillips of Phillips Wealth Partners warns that the implications are far-reaching. “For many Australians, their home is not just a place to live, it is their primary financial asset. The loss of that asset without insurance could mean bankruptcy, homelessness, or decades of financial recovery,” Mr Phillips said.

The Underinsurance Crisis

A 2024 analysis by MCG Quantity Surveyors found that Australian residential properties are underinsured by an average of 18 percent. This shortfall is attributed to rising construction costs, unreliable online insurance calculators, and ongoing supply chain disruptions. Compounding the issue, a 2025 survey revealed that 72.1 percent of households had not updated their contents insurance after purchasing major items, leaving them exposed to significant financial losses.

Mr Phillips noted that underinsurance is often a result of misunderstanding rather than neglect. “Many homeowners assume their insurance policies automatically adjust to reflect rising costs or new purchases. Unfortunately, that is rarely the case. Regular reviews are essential,” he said.

Uninsurance Rates

Polling conducted by The Australia Institute shows that 19 percent of Australians report their homes are either underinsured or uninsured, representing approximately 1.4 million dwellings. Renters are particularly vulnerable. Previous surveys indicate that two-thirds or more lack contents insurance. A 2024 RACQ Insurance study found that 78 percent of Queensland renters did not have contents insurance, with younger renters being the least aware of its existence.

Affordability Pressures

The Actuaries Institute has reported that 1.61 million households, equivalent to 15 percent of the population, are experiencing “extreme” home insurance affordability stress, a 30 percent increase from 2023. Areas at high risk of floods and cyclones, such as Queensland and the Northern Rivers region of New South Wales, are disproportionately affected.

The Institute warns that affordability pressures will worsen as climate change intensifies, with premiums rising sharply for high-risk properties. “We are seeing a growing number of clients who are forced to choose between maintaining insurance and meeting basic living expenses,” Mr Phillips said. “This is not a sustainable situation.”

The Impact of Climate Change

The increasing frequency and severity of natural disasters are driving up insurance premiums across the country. In 2024, median premium increases reached 9 percent, while mean increases were 13 percent. For the 5 percent of households located in the highest-risk areas, premiums surged by more than 30 percent.

These rising costs, coupled with broader cost-of-living pressures, are forcing many Australians to forgo insurance altogether. “Climate change is not just an environmental issue—it is a financial one,” Mr Phillips said. “The economic impact on households is already being felt, and it will only intensify.”

The Australian Council of Social Service (ACOSS) has observed that insurance is often the first expense cut during financial hardship. Experts warn that underinsurance and uninsurance leave households vulnerable to catastrophic losses, potentially leading to bankruptcy or long-term debt.

Mr Phillips believes that coordinated action is required. “We need a national strategy that addresses both affordability and awareness. Insurance must be accessible, understandable, and responsive to the realities of climate risk,” he said.

This report serves as a stark reminder of the urgent need for comprehensive insurance reform and climate adaptation strategies to protect households from the devastating impacts of natural disasters.

Reference

• Climate Change, Home Values and Underinsurance – The Australia Institute

For more information or to book a discovery meeting, visit www.phillipswp.com.au or call 1300 10 22 33.

DISCLAIMER: This article is based on content presented by Phillips Wealth Partners Pty Ltd (ABN 74624858420), trading as Phillips Wealth Partners. Craig Phillips is an Authorised Representative (No. 334567) of Fintegrity Wealth Advisers Pty Ltd (ABN 89653321487 AFSL 534971). The information provided is general in nature and does not constitute specific aged care, taxation, superannuation, retirement investment or social security advice. It is based on current laws, rulings, and interpretations as at the date of publication. Readers should seek personalised advice before making financial decisions.