When disaster strikes: Under-insurance in Australian households

Abstract

In undertaking what we believe is the first national-scale study of its kind, we provide methodologically transparent, statistically robust insights into associations and potential unfolding effects of house and contents under-insurance. We identify new dimensions in the complex relationship between householders and insurance, including the salience of interpersonal – and likely institutional – trust. Under-insurance is (re)produced along socio-economic and geographical lines, with those of lower socio-economic status or living in cities more likely to be under-insured. Should a disaster strike, such communities are likely to suffer further disadvantage, especially if governments continue to shift the responsibility for risk onto households. Our findings support the observation that insurance can contribute to increasing socio-economic urban polarisation in light of natural disasters. We conclude by considering how under-insurance may contribute to growing urban social stratification, as well as how it may produce situated ethical and political responses that exceed neoliberal aspirations.

An Unmitigated Disaster: Shifting from Response and Recovery to Mitigation for an Insurable Future

“…Other well-documented factors have included difficulties understanding insurance products (Enright 2013), a lack of consumer awareness of supplementary costs such as temporary accommodation and landscaping (Teague et al 2010), cost deviations such as demand surges and changes to building regulations (Olsen and Porter 2011;Legal Aid 2014), problems calculating ''sum insured'' (ASIC 2014), and risk misunderstandings (Box et al 2016). As insurance decision making is not simply based on an individual's rational calculation of potential risks, households implicitly or explicitly bring social and material concerns to bear when purchasing a policy and this can also contribute to Government (2010) underinsurance (Booth and Harwood 2016;Booth and Tranter 2017). Further factors that affect the rates of under-and noninsurance are recent dramatic rises in premium costs as a result of increasing claim numbers (particularly in relation to the disasters of 2010/2011), and the progression towards risk-reflective pricing predominantly for households in flood-and cyclone-prone areas.…”

“…Unlike floods and cyclones, risk-pricing for bushfires is only now beginning to be calculated in insurance premiums, as bushfires have previously been considered a negligible risk ). This change is likely the result of insurance administrative costs, population growth, and asset increase in high-risk areas, the rising frequency and intensity of high-fire-danger-days, improvements in risk mapping, and the capacity of insurers to encourage households to take responsibility for their own risk (Teague et al 2010;Booth and Tranter 2017). As with cyclones, financial support for household retrofits are envisaged to counter future insurance increases, contribute to greater community resilience by reducing fire risk in adjoining areas, and assist the sustainability of insurance systems by limiting future claims.…”

Underinsurance as adaptation: Household agency in places of marketisation and financialisation

“…In Western nations, there is a well-established relationship between socio-economic status and property insurance uptake. Australians on lower incomes, for example, are less likely to have house and contents insurance (Booth and Tranter, 2018), and in the UK, low income has been identified as an indicator of house and contents underinsurance (Whyley et al., 1998). For government-sponsored flood insurance that covers damage to property in the USA, uptake is positively associated with educational attainment (Atreya et al., 2015).…”

“…Governments and non-government organisations provide some financial support to households whose property is impacted by large-scale disaster events, but most rely on insurance to recover houses and contents impacted by these and other adverse events (De Vet et al., 2019). For homeowners, around 84% of Australians have house insurance, 85% have contents insurance and 79% have both house and contents insurance (Booth and Tranter, 2018). For renters, around 60% have contents insurance, with the insurance of the buildings being the responsibility of landlord-investors.…”

Privatizing climate adaptation: How insurance weakens solidaristic and collective disaster recovery

“…In market‐based economies, private home insurance is becoming increasingly normalized as a market‐based mechanism to enable and incentivize individual adaptation to climate change (Booth & Tranter,2018; King et al, 2013; Porrini & Schwarze, 2014). This can be seen, for example, in policy preferences for private, autonomous adaptation expressed by the Council of Australian Governments (McDonald, 2014), shifts in the rhetoric of UK governments from managing floodwaters to managing the behavior of individuals at risk (Butler & Pidgeon, 2011), and a focus on private insurance as a climate adaptation strategy endorsed by the EU (European Commission, 2018).…”