In 2006, just 6% of Australians were covered by flood insurance.
Now, according to the Australian Financial Review, around 83% of households are covered.
On face value that seems to be a much improved statistic. The problem is that it hides the fact that many of Australia’s homes at high risk of flood don’t have flood insurance, mainly because the people who live there can’t afford it. The AFR reports that of the 7% of households that are in high risk flood areas, a large percentage are in the 17% minority that still don’t have flood insurance.
In the past, councils have given approval for houses to be built in flood prone or high risk areas, resulting in the existing owners now having to pay high premiums, in some cases upwards of $20,000 a year. And because they are in those high risk zones, the houses tend to be cheaper, and therefore owned by those who have limited incomes, and less likely to be able to afford over $20,000 in insurance, to cover flooding.
Flood cover is widely available, through many of our insurers like Suncorp Limited (ASX: SUN), Insurance Australia Group (ASX: IAG), QBE Insurance (ASX: QBE) and AMP Limited (ASX: AMP), but Allianz Australia estimates it could cost $24,000 to insure a home and contents to the value of $389,000 in a high risk zone in NSW.
Following the devastating floods in Queensland in 2011, a reinsurance pool was recommended to cover those in high risk areas, but the government has yet to make a decision on it. With the cost estimated at over $1 billion for the 2011 floods that would put an even bigger hole in the government’s forecast budget surplus.
The Foolish bottom line
Thousands of Australians now live in areas that should never have been zoned suitable for building houses. The fact they are less likely to be covered by flood insurance means the government has a big problem on its hands, with no easy solution in sight.
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