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Australia’s wide geographical area and diverse climatic conditions make it vulnerable to natural disasters. In the past few years, the southern parts of the country have been ravaged by bushfires, the Eastern Coast has been hit by floods, and significant storm events and cyclones have occurred.
As you can imagine, the aftermath of a natural disaster typically involves a lot of clean-up and rebuilding for those affected.
However, there are also a number of flow-on effects from these events for those not directly affected that are of particular importance to homeowners and first home buyers.
A natural disaster can drastically reduce the market value of affected properties, as property buyers become deterred by the high risk factor associated with the property or area.
This can also make it difficult for owners to sell their homes or vacant land, as the buyer pool willing to take on that risk reduces.
Properties located in high-risk areas may face the risk of becoming uninsurable, which can adversely affect their value. This may make it difficult for property owners to sell their properties as potential buyers may be discouraged by the lack of insurance coverage.
Following a natural disaster, insurance companies are inundated with claims for damages, which can take months, or even years, to process.
Insurance companies may require their underwriters to assess potential future risks in disaster-prone areas to ensure a balanced risk portfolio across their entire insurance pool. This means that property owners in affected areas may face increased premiums even if they were not directly impacted by a past event.
The AGA’s ‘Report on Home and Contents Insurance Prices in North Queensland’ highlighted that the premium rates for home and contents insurance in North Queensland increased by approximately 80% during the period covered by the report. This increase was attributed to the region experiencing Cyclone Larry, Cyclone Yasi, and the Mackay Storms during this time. In contrast, the premium rates for home and contents insurance across Australia increased by approximately 25% over the same period.
Underinsurance or uninsurance is often the outcome, with homeowners either unable to afford the cover or justify the cost, presenting a substantial financial risk to homeowners if a natural disaster occurs.
It is crucial to conduct thorough research, especially when considering buying a property in an area prone to disasters.
Know the property history
Research the history of the property, including the surrounding area, to understand the risk for natural disasters:
Read the fine print
Not all insurance policies are created equal, so it’s essential to understand the terms and policy definitions of any insurance contracts, particularly for disaster prone areas:
By researching insurance coverage and obtaining quotes during your property due diligence, you can include the actual cost in your budget, ensuring you can afford coverage and avoid being forced into a situation of uninsurance or underinsurance.
Risk mitigation and disaster management
If you’re looking to purchase a property in a high risk area, be aware of risk mitigation strategies to assist with reducing risk.
Without appropriate insurance cover or a streamlined disaster management plan, the financial implications of natural disasters can have dire consequences.
If you’d like further advice in relation to ensuring you are adequately protected, or if you require assistance with purchasing a home, please reach out to discuss how we might be able to assist.
The information contained on this website has been provided as general advice only. The contents have been prepared without taking account of your personal objectives, financial situation or needs. You should, before you make any decision regarding any information, strategies or products mentioned on this website, consult your own financial adviser to consider whether that is appropriate having regard to your own objectives, financial situation and needs.