Is fire insurable? 113
United States, over 90% of homes – perhaps as high as 95% – have homeowner insurance (Insurance Information Institute (III) 2016). In Australia,
89%–96% of homeowners have an insured property (Booth & Tranter 2018,
p. 3137; ACCC 2020, p. 269). In other words, the presence or absence of
force-placed insurance mechanisms does not seem to impact the likelihood of whether a mortgaged dwelling is insured. In both Australia and the
United States, all or almost all mortgaged homes are insured for fire if for
no other reason than they have to be.
But also, in both the United States and Australia, the voluntary take-up
rate for insuring dwellings for fire is exceptionally high. In the United
States, from 2011 to 2018, only 59%–66% of homes had a mortgage or line
of credit secured by a home (averaging 63%) (United States Census Bureau
2021). Meaning 73.5%–87.8% of homeowners in the United States who have
a choice, choose to have dwelling insurance coverage for fire. Similarly,
the most recent data from the Australian Government is that 53.7% of
homeowners have a mortgage (Australian Institute of Health and Welfare
(AIHW) 2020). Meaning 76.2%–91.4% of homeowners in Australia who
have a choice choose to have dwelling insurance coverage for fire.
One striking feature of these figures is that the data highlights that for
homeowners, there is something different about fire risk in particular, in
contrast to flood risk. In the United States, only 13%–15% of owner- occupied
homes are insured for flood and for 40% of these homes, flood insurance is
required, meaning in the United States only 8.2%–9.6% who have a choice,
choose to have flood insurance (III 2016, p. 5; 2021c; Strochak et al. 2018).
Australia appears to have a somewhat better penetration of flood cover
than the United States, but certainly still nothing like the prevalence of fire
cover. In 2008, the Institute of Australian Actuaries reported that insurance
for the ‘overflow of rivers and creeks following long duration rainfall’ was
‘becoming more common, although is still far from the norm’ (Institute of
Actuaries of Australia (IAA) 2008, p. 1). By 2011, the Insurance Council of
Australia (ICA) predicted that by 2013 flood cover could rise to as high as
30% (Australia Government, The Treasury 2011, p. 22, n. 10).
Why is take-up of fire cover different than flood? It seems to be a
combination of two factors. First, in both the United States and Australia
there seems to be persistent confusion about whether standard home insurance covers flood (Carter 2012, p. 21; III 2017, p. 2, 6, 9). Second, as the
Australia Government describes, the core problem is, ‘all home insurance
policies include cover for bushfire, earthquake, cyclone and storm, but not
flood. … flood cover has traditionally been excluded from home insurance
policies, and only over the last decade has flood cover been made available
by a limited number of insurers. Where it is available, consumers are often
able to opt-out of flood cover and evidence indicates that, when able to optout, many policyholders do so’ (Australia Government, The Treasury 2011,
p. 29). Similarly, in the United States, typically flood cover is excluded from
mortgage-required and mortgage-compliant dwelling insurance (FIO 2015,
United States, over 90% of homes – perhaps as high as 95% – have homeowner insurance (Insurance Information Institute (III) 2016). In Australia,
89%–96% of homeowners have an insured property (Booth & Tranter 2018,
p. 3137; ACCC 2020, p. 269). In other words, the presence or absence of
force-placed insurance mechanisms does not seem to impact the likelihood of whether a mortgaged dwelling is insured. In both Australia and the
United States, all or almost all mortgaged homes are insured for fire if for
no other reason than they have to be.
But also, in both the United States and Australia, the voluntary take-up
rate for insuring dwellings for fire is exceptionally high. In the United
States, from 2011 to 2018, only 59%–66% of homes had a mortgage or line
of credit secured by a home (averaging 63%) (United States Census Bureau
2021). Meaning 73.5%–87.8% of homeowners in the United States who have
a choice, choose to have dwelling insurance coverage for fire. Similarly,
the most recent data from the Australian Government is that 53.7% of
homeowners have a mortgage (Australian Institute of Health and Welfare
(AIHW) 2020). Meaning 76.2%–91.4% of homeowners in Australia who
have a choice choose to have dwelling insurance coverage for fire.
One striking feature of these figures is that the data highlights that for
homeowners, there is something different about fire risk in particular, in
contrast to flood risk. In the United States, only 13%–15% of owner- occupied
homes are insured for flood and for 40% of these homes, flood insurance is
required, meaning in the United States only 8.2%–9.6% who have a choice,
choose to have flood insurance (III 2016, p. 5; 2021c; Strochak et al. 2018).
Australia appears to have a somewhat better penetration of flood cover
than the United States, but certainly still nothing like the prevalence of fire
cover. In 2008, the Institute of Australian Actuaries reported that insurance
for the ‘overflow of rivers and creeks following long duration rainfall’ was
‘becoming more common, although is still far from the norm’ (Institute of
Actuaries of Australia (IAA) 2008, p. 1). By 2011, the Insurance Council of
Australia (ICA) predicted that by 2013 flood cover could rise to as high as
30% (Australia Government, The Treasury 2011, p. 22, n. 10).
Why is take-up of fire cover different than flood? It seems to be a
combination of two factors. First, in both the United States and Australia
there seems to be persistent confusion about whether standard home insurance covers flood (Carter 2012, p. 21; III 2017, p. 2, 6, 9). Second, as the
Australia Government describes, the core problem is, ‘all home insurance
policies include cover for bushfire, earthquake, cyclone and storm, but not
flood. … flood cover has traditionally been excluded from home insurance
policies, and only over the last decade has flood cover been made available
by a limited number of insurers. Where it is available, consumers are often
able to opt-out of flood cover and evidence indicates that, when able to optout, many policyholders do so’ (Australia Government, The Treasury 2011,
p. 29). Similarly, in the United States, typically flood cover is excluded from
mortgage-required and mortgage-compliant dwelling insurance (FIO 2015,