Australia is nearing an insurance crisis. And it’s only getting worse

January 25, 2026 — 5:01am

The problem of rising home insurance premiums and increasing risk of natural disasters sadly isn’t new. Over the past decade in Australia, it’s been gradually building speed, with more and more people feeling as if they have an impossible choice to make – protect the home they love in case the worst happens, or go underinsured as a result of ever-increasing premium costs in a sustained cost-of-living crunch.

As we’ve seen already this year, this is a problem that’s not going to go away any time soon. And often, it could be getting worse.

In 2022, nearly one in 20 Australians had their homes destroyed entirely or damaged due to weather-related disasters like bushfire, flooding or cyclones. What’s more, the Climate Council suggests more than 650,000 (roughly one in every 23) homes are already at “high risk” of damage or destruction by these types of disasters. They also say that within the next 25 years, as many as an additional 100,000 homes could be added to this figure.

According to data from the Household, Income and Labour Dynamics in Australia (HILDA) Survey, as of 2023, one in every 20 homes is underinsured – meaning the owners have some level of coverage, but not enough to fully rebuild if required. To put that in real-world terms, that works out to be roughly one child in every classroom not having a home to return to if the worst were to happen.

Following that, about one in 30 homes don’t have any home building insurance at all – meaning if anything happens, be it a leaky roof or complete flooding, the owners may not be eligible for any compensation at all.

But here’s where things get terrifying. Those figures work out to be around 800,000 properties across Australia. And the collective value of all of those underinsured and uninsured houses is at least $119 billion, as of 2023, according to the Australia Institute. Worse still, about 300,000 of those homes still hold mortgages.

I can understand how, when prices have gone up and stayed up for so long, insurance feels like the thing that has to be cut.

The problem with this is twofold. First, it means that if the worst were to happen, and you lose your home while there’s still a mortgage attached, you could find yourself carrying debt for a property that no longer exists.

Secondly, it puts you at risk of being in breach of your mortgage contract. Generally, full building insurance is a requirement for securing a mortgage from the bank. When that doesn’t happen, you may be at risk of breaching the conditions of the loan.

It also puts you at risk of forced place insurance, which is where the bank takes out home insurance on your behalf as a condition of the loan, and which is almost always much more expensive than what you’d be paying if you shopped around.

But because the bank has the right to do this, you still foot the bill, even if the forced place insurance is twice or three times what you were paying before the correct level of your choice of insurance lapsed.

You may also find that you have problems if and when you try to get insurance again. The first issue is that like many things in life, loyalty is rewarded. Meaning the longer you’re a customer, the more benefits you build up and the lower the price generally is. In allowing a policy to lapse or drop a level, you could lose any discounts or favourable rates that you’ve been able to enjoy in the past.

But rather than simply finding yourself priced back at square one when you are ready to return to full coverage, you could face a hefty increase.

That’s because a lapse can increase your risk profile according to insurance companies, and because your property could have all new premiums applied based on current market rates, your current age and current circumstances – not the ones you had when you first took out coverage.

But it’s easy to understand why so many people have struggled to keep up recently. In 2025 alone, Australians paid up to $700 more for home and contents insurance premiums than we did in the previous 12 months.

One analysis found that nationally, the average increase was 14 per cent from 2024 to 2025. In Victoria, the average increase was 17 per cent, which equated to an extra $341 per year. In NSW, it was $403 (18 per cent).

At the risk of sounding like a broken record, I can understand how, when the price of just about everything has gone up and stayed up for so long, this feels like the thing that has to be cut.

But that same analysis from Canstar found something interesting – and hopeful. In evaluating policies from more than 45 insurance providers in Australia and about 25,000 policies, they found that if households switched to a different and more affordable insurer, the average annual saving was $766.

In NSW and Queensland, there are also home resistance funds available to homes in at-risk areas. This funding can not only help you make your property safer, but also bring down insurance premiums.

Increasingly, there are also a number of small but effective investments you can make around the home that also pack the same one-two punch. As this masthead reported earlier this month, spending about $30,000 on retrofitting homes in areas at risk of bushfires can lift their safety rating by as many as two stars (out of a possible five), and a number of insurers now offer premium discounts where an owner improves their property’s disaster resilience.

For all of us, where we live and the kinds of properties we live in will always dictate what our options are, and the cost of home insurance. But when combined, all of this indicates that there are more options than simply having insurance or not – and often more options than we realised at first glance.

Victoria Devine is an award-winning retired financial adviser, a bestselling author and host of Australia’s No.1 finance podcast, She’s on the Money. She is also founder and director of Zella Money.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their personal circumstances before making any financial decisions.

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