Life on the West Island - Uninsurable

West Island politicians, mass and social media are all scrambling to blame insurance companies for substantial increases in home insurance premiums, in what is described as a “cost of living crisis.” (As a side note, in practice, we do not have a universal crisis, but rather have developed a two-speed economy, where the rich and well-off are doing well, while others burdened with unaffordable housing and ridiculous spending priorities are struggling to pay for a house full of appliances, room sized televisions, multiple cars and a plethora of streaming services, while struggling to pay for those excesses, not to mention mortgages, food, clothing and schooling.)

A recent paper by Dr Richard Denniss, Executive Director of the independent Australia Institute, has examined the home insurance industry and identified some of the realities of the situation. In a thoughtful essay entitled Why we can’t insure our way out of the climate crisis, he explains that it is time for the West Island government to admit we cannot insure our way out of the climate crisis which our fossil fuel exports do so much to cause:

The scientific reality is that sea level rise and increased storm damage will make heavily populated parts of Australia uninhabitable, and the economic reality is that houses in those areas will be uninsurable, because it is impossible to get insurance against likely events.

The only reason an insurance company will insure your car is they know it is unlikely that you will crash it. That’s why no matter how much you are willing to pay, the company won’t insure your car if you have an accident while drink driving. Put simply, insurance is a gamble, and your premium is determined by the odds of a payout and the size of the catastrophe. When you insure your house, you are betting that something bad is going to happen and the insurance company is betting that it won’t.

At the end of the year if you do not crash your car or burn your house down you will probably feel good about your choices, but not nearly as good as your insurer who got a few thousand dollars from you in exchange for your peace of mind.

But insurance companies don’t make risky bets. They know that there is only about a one in 600 chance you will have a house fire, which is precisely why they are happy to bet you won’t. But see what happens if you try ringing them to insure your car against hail damage after hail has been forecast. Hint, no chance.

Insurers don’t make big bets either. While you might think them paying you $500,000 if your house burns down is a big bet, for an insurance company with tens of billions in annual revenue that’s a rounding error.

But if the Lucas Heights nuclear reactor in Sydney blew up, and a quarter of Sydney had to be evacuated, that would really sting an insurance company – which is why every home insurance policy in Sydney has fine print saying the policy doesn’t cover nuclear accidents.

Just like casinos have a maximum bet to avoid the risk of a lucky billionaire sending them bankrupt, insurance companies won’t insure against catastrophes like war, nuclear fallout or, in coming decades, climate induced floods, storms and bushfires.

While the profits of insurance companies and the ways they treat consumers should always be carefully scrutinised, it makes no sense to blame the industry for charging higher premiums to insure against more likely and destructive storms and fires. Likewise, it makes no sense for governments to keep pretending that there is any role for the insurance industry in protecting low-lying communities against flood damage.

It has been a common belief on the West Island that the insurance industry will push for ambitious policies to combat climate change. Denniss points out that they have a much simpler strategy to protect their profits. They will just stop offering to insure properties at high risk from known consequences of natural disasters, such as floods, storms and bushfires – that is, they will declare many homes and properties to be uninsurable and leave the owners to bear the losses:

While someone who has insured their home with the same company for 50 years and never made a claim might think that the insurer will be there for them if something bad happens in the future, in reality the company gets to decide every year if it wants to stick around or leave them to look after themselves. We can no more rely on insurers to protect us from floods than we can expect Coles or Woolworths to protect us from famines.

What is clear is that governments have created the crisis, and it is up to governments to deal with it. As long as we remain addicted to mining and burning fossil fuels, climate disasters will continue to wreak havoc on our housing, faming and industrial sectors, and many more properties will become uninsurable. Bandaid solutions like disaster relief funding will become more expensive and ineffective. Denniss is clear what needs to be done:

If the Albanese government is genuinely worried about the costs of insurance, it needs to rapidly introduce a ban on new gas and coal mines, abolish expensive fossil-fuel subsidies and stop giving away export gas for free. This will slow the rate of climate change and fund the enormous cost of adapting to the sea-level rise that is already locked in.

While successive Australian governments have tried hard to suggest that fossil fuel exports don’t harm Australia, in reality no matter where in the world our coal and gas is burned it warms our climate, causes sea levels to rise and, in turn, will make millions of Australian houses uninsurable. Denying the inevitable costs of climate change is no different to denying the science of climate change.

Otherwise, much of the West Island is doomed to become permanently uninsurable.