When Disaster Strikes: Geographies of house and contents under-insurance

Impact and Engagement

House and contents insurance is a key safety net in modern Australian life and is identified as critical to the nation’s effective management of natural disaster events. Many Australians are experiencing severe financial and social impacts of such disasters. In 2011 alone, there were eight official natural disasters comprising catastrophic bushfires, cyclones, severe storms, and large-scale flood events resulting in $5 billion losses and approximately 275,000 insurance claims (ABC 2012), while halfway through the 2015/2016 Australian summer, the disaster bill had already reached $515 million (Pash 2016). The frequency and intensity of disaster events are also predicted to increase due to climate change (Booth & Williams 2012). With householders increasingly reliant upon housing assets for personal financial security (Searle & Smith 2010), and growing populations and concentration of wealth in disaster-prone areas, disaster-related costs are on the rise (Foster et al. 2013; Schmidt et al. 2010). Yet house and contents insurance remains a poorly understood, under-developed and under-utilised mechanism in disaster management.

Evidence from major bushfires suggests that the rate of house and contents non-insurance and under-insurance in high risk areas is likely to be significant. A survey of survivors of the 2013 Blue Mountain fires where around 200 properties were destroyed, indicates that 82% of those who suffered a total loss of their homes were under-insured (Legal Aid NSW 2014). The estimated amount of under-insurance ranged from $100,000-500,000 for homes, and $40,000-200,000 for contents. In the 2009 Victorian Black Saturday bushfires where over 2000 homes were destroyed about 13% of all property losses were not insured (Teague et al. 2010). The average uninsured loss for each natural disaster in Australia between 2004 and 2011 is estimated at almost one billion dollars (Lloyds 2012).

Despite the importance of house and contents insurance in disaster management, there are no independent, robust data for rates of non-insurance and under-insurance in Australia. Little is known about the factors that contribute to these rates, such as socio-economic and geographic indicators. Furthermore, comprehensive research on claimants’ experiences following disasters and the impact of their experience upon recovery is non-existent. There is therefore urgent need for research into this key mechanism for disaster management, as well as for collaborative policy development and implementation (Booth & Harwood 2015; Booth & Williams 2012).

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