Climate scientists say that global warming drives extreme weather like storms, floods and heatwaves, making these disasters more frequent and intense
Climate scientists say that global warming drives extreme weather like storms, floods and heatwaves, making these disasters more frequent and intense. AFP

A new climate risk analysis predicts that one in 10 properties in Australia could become uninsurable within the next decade, which could lead banks to start turning down mortgages in high-risk areas.

According to Climate Valuation analysts, about 380,000 properties are already uninsurable or unaffordable to insure—roughly one in every 20 homes. This figure is expected to double, with the number of uninsurable properties reaching one in 10 by 2035, ABC reported.

"All of this, unfortunately, is rolling out like clockwork, just as has been predicted in the climate models," Climate Valuation CEO Karl Mallon said. "It's sad to say that since the 1980s we've said this is what's going to happen and it's happening just as predicted, if not a little bit faster and a little bit worse."

Homeowners in rural and regional areas, especially those vulnerable to extreme weather, are feeling the impact. Many in these areas are already priced out of the market, with some facing steep premium hikes or complete denial of coverage, Community lawyer Denis Nelthorpe pointed out.

"There's lots of people being told that we won't cover you for flood, if you want flood cover it's going to be $20,000," Nelthorpe added. "Now in my view that is not a serious offer, that is code for 'you're uninsurable'."

Global influences on insurance costs

It's not just local weather events driving up insurance prices. Global disasters, like the devastating Californian wildfires, could also affect premiums here.

Reinsurers covering the cost of wildfires in California are likely to recover their losses by raising rates in other markets, including Australia, according to David Richardson, Senior Research Fellow at Australian Institute.

"We may think that's unfair that we in Australia would be subsidizing insurance in LA but in fact we are all subject to the same global influences. So the insurance companies also know that if things are getting more severe and intense in LA they are getting more severe and intense around the world, whether it's floods in Queensland or fires in Victoria," Richardson said.

Rising property values and mortgage prisoners

As more properties become uninsurable, their values are likely to plummet, as owners struggle to sell homes in high-risk areas. Mallon warned that homeowners unable to afford skyrocketing premiums may face breaches of mortgage agreements. This could lead to banks refusing mortgages for properties in areas with high environmental risks, further destabilizing the market.

"That means that someone who's got a property in a high-risk zone is going to be unable to sell that property," Mallon said. "So you're going to have what they call mortgage prisoners.

What's the solution?

To address these challenges, Nelthorpe suggested that government regulations, such as capping premiums or creating pooling arrangements to subsidize the highest-risk properties, could help keep premiums manageable. However, Mallon disagreed, arguing that such measures could incentivize further development in high-risk zones, ultimately pushing insurers out of the market.

Mallon's preferred solution is a focus on property adaptation—making homes more resilient to climate change impacts. Additionally, Australia should implement national programs to cover the cost of adapting properties to a changing climate, alongside efforts to reduce emissions, he urged.