Climate change and its impact on home insurance uptake in Australia

Abstract

Climate change is impacting the frequency and severity of physical risks such as wildfire, flood, cyclone and extreme precipitation. This is changing both the costs and benefits of home insurance purchase for households—leading to uncertainty about future insurance uptake rates under climate change. We use disaggregated data for Australia on the likelihood of climate hazards, and household panel data, to model the relationship between insurance uptake and exposure to climate physical risks. This model is then used to project insurance purchase out to 2100 under three climate scenarios. We find that exposure to climate risks does influence the likelihood of purchasing insurance. While for most hazards higher risk reduces the likelihood of purchase, there are exceptions, and the relationship is often complex. Projections from our model indicate that insurance coverage is likely to decline relatively modestly, by around one percentage point across Australia from 2000 to 2100 as a result of climate change. However, we find there is significant variation across regions.