Australia's RBA Warns Home Insurance Affordability Threatens Mortgage Quality

The Reserve Bank of Australia has warned that deteriorating home insurance affordability poses a growing challenge with potential systemic implications for the financial system. In its assessment of financial-system resilience, the central bank cautioned that further declines in the affordability of insurance could push more households into underinsurance, which in turn could lower the credit quality of existing mortgage loans, since inadequately insured properties are more exposed to damage that undermines their value and borrowers' finances. Rising premiums have been driven by more frequent and severe natural disasters, higher rebuilding and reinsurance costs, and the growing exposure of homes in high-risk areas to floods, storms and bushfires. The Australian Prudential Regulation Authority's Climate Vulnerability Assessment is expected to help quantify how general insurance affordability may be affected by climate change over the medium term, with results due to be released around the middle of 2026. The issue sits at the intersection of insurance, housing and financial stability, and highlights how climate-related risks can ripple from insurance markets into the banking system. Policymakers and insurers continue to grapple with balancing affordability, risk-based pricing and the need to keep cover accessible for households in exposed regions.