As insurance premiums rise, there are warnings that tens of thousands of households could be breaching their mortgage contracts by ditching their home insurance.
(ABC: Dan Irvine)
A report from the Institute of Actuaries found that 1.6 million households nationwide were experiencing “extreme home insurance affordability pressures,” meaning they were paying more than one month of pre-tax household income on insurance.
Actuary Sharanjit Paddam, one of the report’s authors, observed with some alarm: “It has actually grown by 30 percent, from 1.2 million to 1.6 million households in just one year.”
The Institute of Actuaries report estimated that 180,000 of those households under extreme home insurance affordability pressures had mortgages, representing about 5 percent of households with mortgage loans.
Many of the group members who are under extreme pressure may have abandoned home insurance, which carries a huge risk as it puts the borrower in default of the terms of their mortgage.
However, the exact number of uninsured people is unknown as it is not measured by anyone, not even APRA, which regulates both the insurance and banking sectors, along with superannuation.
“That’s something we don’t collect data on,” APRA president John Lonsdale said at a recent ASIC event.
“There is anecdotal data, but we believe it is a very current and growing problem for the country.”
“It’s not just a problem for individual homeowners. Uninsured properties are also a major source of risk for the banking sector,”
The report he co-authored estimates that the 180,000 borrowers owed banks about $57 billion in outstanding loan balances as of March 2024, representing 3 percent of all home loan assets
What steps can be taken too improve data collection on uninsured homes and better address the affordability crisis?
**Interviewer:** Sharanjit, your report paints a concerning picture about the affordability of home insurance. We’re seeing a 30% increase in households facing extreme pressure. What message do you have for those struggling to keep up with premiums?
**Sharanjit Paddam:** It’s undeniable that rising premiums are putting immense strain on many homeowners. My message to those struggling is don’t ignore the problem. Reach out to your insurer, explore potential hardship options, and shop around for the best possible deal. dropping insurance entirely puts you at significant risk and could jeopardize your mortgage.
**Interviewer:** We’ve heard APRA acknowledges this is a growing problem but doesn’t track the number of uninsured homes. Don’t you think better data collection is crucial to tackling this issue effectively?
**Sharanjit Paddam:** Absolutely. Without thorough data, it’s like fighting a battle blindfolded. We need to understand the true scale of this problem to develop targeted solutions and prevent a potential crisis down the line.
