Looming storm: Eight in 10 have their house on the poker table

Almost six months on from Cyclone Debbie’s $1.4 billion carnage, climate experts are increasingly concerned that lessons haven’t been learnt. Extreme weather and widespread underinsurance leaves Australia exposed to a significant economic blow.

Climate research groups are unequivocal in their view that destructive storms, ocean surges and bushfire-prone conditions are becoming increasingly dangerous to people and property, with an April report from the Climate Council stating “the severity and intensity of extreme weather events are increasing”.

That’s a sizeable problem when you consider eight out of 10 Australian homeowners are underinsuring their home and contents – not because they’re being reckless, but because they either can’t afford the rising cost of full cover or are not aware of how much repairs will actually cost.

Specifically, 83 per cent of Australian homeowners say they wouldn’t be able to resume their same standard of living if their property was badly damaged or destroyed because they don’t have enough insurance, according to the most up-to-date research used by the industry – carried out by Quantum Market Research in 2013.

And while that rate of underinsurance is in line with the historical average, house prices in Sydney and Melbourne have doubled in 10 years and household debt levels now sit at record highs. That means Australians have more to lose if their property is badly damaged, and, if Australia’s major climate research bodies are to be believed, a higher chance of losing.

The problem is only worsening, according to consumer group Choice, which takes aim at insurers for high prices and complicated policies.

“Home and contents insurance has become less and less affordable for homeowners in recent years, and the industry continues to raise premiums to the point where homeowners in some areas, particularly those prone to natural disaster, have been priced out of the market,” a Choice official told Domain.

“An increase in extreme weather events will only make matters worse for those who are already stretched to pay for home insurance.”

The concerns are shared among insurance experts and analysts – CoreLogic’s head of Australian and New Zealand Insurance research, Richard Deakin, points to a lack of knowledge among customers.

“At the risk of sounding alarmist … yes, Australia’s level of housing underinsurance is a concern,” Mr Deakin told Domain.

“[A lot of people] don’t really understand what it will actually cost to rebuild their property because they’re not property experts,” he said. “They may look at their sales price and say ‘the property is worth $400,000 on the market’… but it might cost $500,000 to rebuild that property, if not more.”

In some cases, homeowners could receive insurance payouts of as little as half the sum required to replace their home if disaster were to strike, a joint Choice and Climate Institute report found, and the rising cost of premiums is a central part of the problem.

“In some high-risk locations, the cost of premiums is 10 times that of a typical policy at locations at low risk to weather hazards,” Climate Risk researcher Dr Karl Mallon and his team wrote.

But underinsurance problems run deeper than a lack of affordability – developments are increasingly popping up in risk-prone locations.

“Transparent risk disclosure to homebuyers is a vital precursor to risk mitigation, management and adaptation,” the report found. “Currently, this market failure means that many homes are being built in the wrong locations, specified for the wrong level of hazards, using the wrong materials and the wrong designs.

“The first unwitting victims of this market failure are homebuyers. The second unwitting victims are taxpayers.”

Even homeowners who feel secure in their level of insurance could be in for a shock if the time ever comes to make a major claim.

A central complaint lobbed at the insurance industry is a lack of standardised key terms across insurance products, which “would help consumers understand their cover and not be caught out by restrictive definitions that catch them out at claim time,” Choice said.

For example, while most policies automatically cover “storm run-off”, many require an additional opt-in for a separately defined case of “flooding”, and “King Tides, or actions of the sea”, are rarely covered by insurance.

All of this will come to a head eventually as climate researchers offer solemn warnings.

The Insurance Council has declared 15 “catastrophic” events since the beginning of 2015, with 10 costing more than $100 million in insurance claims – and the Climate Council says extreme weather events, such as heavy rainfall, storms and ocean swells tied to rising sea levels, are becoming increasingly intense.

“Extreme rainfall events are expected to increase in intensity in Australia,” the Climate Council said in a separate April report.

“For Queensland and NSW, the two states most badly affected by ex-tropical Cyclone Debbie, extreme rainfall events are likely to worsen.

“For example, maximum one-day rainfall is expected to increase by up to 17 and 18 per cent for NSW and Queensland respectively,” the Intense Rainfall and Flooding report stated.

With such a considerable number of Australian household budgets left underwater in the event of a natural disaster, how much longer can Australia rely on being the lucky country?