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How does climate change affect my home insurance?

20 July 2022 | 7 min read
Global warming has been accelerating over the last century, and it’s likely this warming will continue. Estimates suggest the earth’s temperature increase could reach 1.5°C within the current decade and 2°C by as early as 2036, while rising sea levels could reach 80cm by 2100.

This is contributing to a raft of concerning weather events across Australia, including:

  • increased frequency of hotter, drier climates across parts of Australia
  • increasingly severe rain and wind events like East Coast Lows, monsoon lows and frontal lows
  • increasing risk of bushfires and forest fires
  • increase in hail size during severe hail events (giant hail)
  • increasing risk of storm surge and coastal erosion in coastal communities

The impacts of severe weather events on homes can be catastrophic. Each weather event is unique, but recovery is invariably costly. Being adequately insured is critical to protecting yourself and your family.

Insuring your home against severe weather events begins with understanding your property’s unique risk level. Plus, the potential costs of recovery for the most likely weather events.

Understanding flood risk and recovery

As many as one in ten homes in Australia have some level of flood risk. Flood risks are measured using an Annual Exceedance Probability (AEP), which shows the likelihood of a flood event occurring within a period of one year, often expressed as percentages. These measures are often expressed as percentages, or as a “1 in 100 year” risk level. A property may have a 1% AEP, also known as a 1 in 100 year risk. This means that in any one year, there is a 1 in 100 chance of a flood. The location of a property is the main driver of flood risk.

“Floods are typically the most damaging and widespread of all the severe weather events from an insurance perspective.” - explains Andrew Dyer, IAG Natural Perils Specialist. Often flood recovery requires stripping out wall linings and floors, rectifying mould and corrosion, structural damage and electrical issues. These activities can cost upward of $80,000*.

Understanding fire risk and recovery

Consistently hotter and drier weather conditions mean bushfires are on the rise in Australia. There are several factors that influence the likelihood of bushfires. This includes:

  • surrounding buildings
  • vegetation levels
  • high temperatures
  • radiant heat
  • topography (slope of the land)

Each region has a Fire Danger Index, which dictates the broad risk to the region. Individual properties are assessed using a Bushfire Attack Level (BAL) rating system. These ratings establish the construction and building requirements to ensure maximum bushfire resilience. You can find out the BAL level of a property by contacting local authorities or obtaining a report from a qualified assessor.

Depending on the BAL level of your home, it’s estimated that recovery costs can be between $53,000 and $273,000* for a 200m2 house. In addition, clean up costs can come in at $46,000*, and increase as the complexity of clean up increases. This can include specialist asbestos removal, and removal of debris and materials from the recovery site.

The BAL level of your home will help to inform the level of insurance cover you need.

Understanding tropical cyclone risk and recovery

Tropical cyclones are intense low pressure wind systems that develop over the tropical and subtropical oceans around Australia. Geographically, homes fall within wind regions, which are graded A-D based on their likelihood of being hit by tropical cyclones. In addition to wind regions, wind classifications take into account a property’s shielding, terrain and topography, i.e., how sloped the land is.

To get an idea of your home’s wind classification, examine the views from your windows. Properties that look out from the top of a hill, or have an uninterrupted view of green space or water are more likely to experience higher wind speeds. This may result in a higher wind classification.

There are ways to protect your home and reduce the severity of impact if a tropical cyclone strikes. Newer homes can have window bolts or debris screens installed. Older homes may require retrofitting. This can include garage door replacements, roof replacements and installation of shutters and window screens.

While costly, $46,000* is the average cost of debris removal after a tropical cyclone.

Can you insure your home against extreme weather conditions?

In short, yes. But adequate cover is what’s important. Understanding your property’s risk and the potential costs you could incur if the worst happens can help ensure you have the right policy. You’ll need to be insured for both recovery and clean up costs to be the best protected.

The cost of insuring your property against weather damage will depend on a variety of factors. This includes your home’s specific classifications and risk levels, for example BAL levels and wind classifications. Recent weather events in your region may also play a role.

Andrew Dyer adds that “as the characteristics of natural hazards change over time, insurers are likely to update their pricing to reflect the increased cost of covering claims from more frequent and severe events.”

Factoring weather risk into your home buying process

If you’re in the process of buying a property, it’s important to consider how climate change could interact with the home you’re looking to buy. This includes being aware of:

  • exposure to risk zones for certain weather events – remember, zones are expanding
  • the type of property you’re buying and its unique risks
  • the ways of protecting yourself against natural disasters, for example weatherproofing and escape plans
  • the rising cost of insurance premiums
  • your available personal savings – you might need a higher emergency fund if you’re in a high risk region

“The first step in understanding future climate risk is to understand the current climate risk. Home buyers can check with the relevant statutory authorities responsible for managing natural hazards (e.g. local Council, Catchment Management Authority or Bushfire Service) to investigate the risk of natural hazards at their location,” explains Dyer.

Protecting your home beyond insurance

“In addition to insurance cover, it’s important that people are aware of options to make their homes more resilient to weather-related risks.”

Being adequately insured is one thing, but there are things you can do to manage and mitigate your home’s risk of impact, too. “We encourage customers to understand their risk from natural hazards and take steps to mitigate risk where possible, for example by regularly trimming overhanging branches, clearing gutters, and ensuring their properties are well maintained,” Dyer adds.

Resources are available to help you protect your property. The Bushfire Building Council of Australia’s (BBCA) FORTIS House project empowers people to protect themselves against climate and disaster risks by giving them practical solutions so they can build back easier, faster and stronger.

*Source: Insurance Australia Limited (IAG) data from current debris removals after the 2019-2020 Christmas period fires.

Information and data provided to Bendigo and Adelaide Bank Limited (the Bank) by IAG, Australia’s largest general insurer, and James Cook University Cyclone Testing Station.

Insurance products are issued by Insurance Australia Ltd ABN 11 000 016 722 AFSL 227681 trading as CGU Insurance. In arranging insurance policies, the Bank acts under its own AFSL 237879 and under an agreement with the insurer.

Any advice provided in this article is of a general nature only and does not take into account your personal needs, objectives and financial circumstances. You should consider the relevant Product Disclosure Statement (PDS) available online and whether or not the insurance is appropriate for you before deciding whether to acquire the insurance. Policy conditions, limitations and exclusions apply. Target Market Determinations for products are available. 

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