Home insurance in flood, bushfire and cyclone zones is rising faster than incomes, and APRA and the RBA are now warning that uninsured homes could weaken the mortgage system itself.
Home insurance premiums in Australia's flood, bushfire and cyclone zones have risen faster than incomes, and the country's financial regulators are now asking what happens to mortgage lending when homes become too expensive to insure, or impossible to insure at all. The figures come from the Actuaries Institute, the Australian Prudential Regulation Authority (APRA) and the Reserve Bank of Australia (RBA).
The affordability squeeze is widening
The Actuaries Institute tracks this through its Home Insurance Affordability Index, which flags a household as under "affordability stress" once home insurance costs more than four weeks of its gross income. On that measure, stress has spread fast: from around one in 10 households in 2022 to roughly one in seven now. And the households caught in it are not paying a little more than everyone else. They are paying about seven times as much relative to income, close to nine or 10 weeks of pay for a single year of cover.
The pain is not evenly shared. On the highest flood-risk homes, premiums have jumped by around half in a single year, and for more than 170,000 households flood risk alone now makes up more than half the bill. That is what pushes some owners in high-risk areas to quietly drop cover, lift their excess or go without. That underinsurance is exactly what regulators are now watching.
When insurance stress becomes a lending problem
Insurance stress does not stop at the household budget. Because most lenders require borrowers to hold home insurance for the life of the loan, a household that can no longer afford premiums is forced into a real choice between staying covered and meeting its repayments. The Actuaries Institute puts that group at roughly one in 20 mortgaged households, already caught in exactly that bind.
APRA put numbers on the risk in March 2026, in a stress test called "Mind the Gap". It found that about one in seven homes is likely uninsured today, simply because cover has become unaffordable. That is a different group from the households under affordability stress above, who are still paying, just at a punishing cost. On the scenarios APRA modelled, the gap could widen to one in four homes by 2050, with the losses concentrated in regional New South Wales and Queensland.
APRA tied this straight back to the banks. An uninsured borrower who takes a weather hit has less capacity to keep repaying, and a damaged uninsured home may no longer be worth what is owed on it. A widening protection gap, in APRA's words, "may amplify credit risk for banks in regions with high weather peril risks".
The RBA has said much the same in its Financial Stability Review, warning that falling insurance cover on mortgaged homes could quietly lower the credit quality of loans the banks already hold. Its own research found that climate-exposed mortgage-backed securities, often issued by smaller regional lenders, carry no extra buffer for that risk, a sign the market has not yet priced it in.
One point of precision. No Australian lender is yet systematically pricing a home's insurability into its serviceability tests. What already exists is narrower: insurance is a standing condition of most loans; many lenders and mortgage insurers apply risk-graded postcode ratings that can affect deposit requirements in high-peril areas; and both APRA and the RBA have flagged insurability as an emerging risk rather than a settled one.
The homes that cannot be insured at all
Beyond affordability, a smaller group of homes faces a harder problem again: risk so high that no insurer will cover them at a workable price. The Climate Council's 2022 report Uninsurable Nation put this at around one in 25 properties, roughly half a million homes, on track to be effectively uninsurable by 2030, with another one in 10 or so sitting just behind them in a "medium risk" band.
The driver is not fire or wind but water. Riverine flooding, the kind that spills from rivers and creeks after heavy rain, accounts for about 80% of the worst-hit cases.
The risk is also heavily concentrated. Queensland was projected to be worst affected, at about one in 15 properties, with New South Wales and South Australia the next most exposed. That mapping is now a few years old, but its direction lines up with APRA's more recent stress test.
One government fix, so far
The clearest government response so far is aimed at just one peril: cyclones. The Cyclone Reinsurance Pool, run by the Australian Reinsurance Pool Corporation (ARPC), started in July 2022 and gives insurers government-backed reinsurance for cyclone damage, including the wind, storm surge and flooding that come with a cyclone where the policy covers them.
It exists because private reinsurance had made cyclone cover across northern Australia increasingly hard to get, or to afford. The pool now sits behind millions of home policies and has already been tested hard, with Tropical Cyclone Alfred alone driving the bulk of its claims to date. There is still no equivalent pool for flood or bushfire, the two perils driving most of the uninsurable risk in the section above.
What it means if you are buying or investing
For a buyer or investor, the real signal is that a property's insurability is now part of its cost and its risk, not a detail to sort out after settlement. In a flood, bushfire or cyclone-exposed area, budget for premiums that can climb far faster than the national average, and find out what cover actually costs before you commit, not after.
It is also worth knowing that some lenders already treat high-peril postcodes differently on deposits and conditions, so insurability can shape the loan as well as the running costs. On the trajectory the regulators describe, the gap between low-risk and high-risk locations is set to widen, not close.
