Natural Disasters Have Caused A Global Home Insurance Crisis—How Other Countries Cope

Australia’s Targeted Government Assistance

Not unlike the U.S., Australia is also facing a home insurance crisis. The country’s climate has gotten warmer over the years, which has exaggerated its bushfire problem and increased the intensity of tropical cyclones.

The number of Australian homes that were “affordability-stressed,” or where the insurance would cost more than four weeks of household income, rose 30% in 2024 to 1.61 million. To make matters worse, global insurance companies passed on the costs of natural disasters elsewhere in the world to Australian policyholders.

To combat some of these problems, the Australian government has implemented grants for customers not only to help repair and rebuild but also to help lower insurance costs.

For example, in 2022, it implemented the Cyclone Reinsurance Pool grant, which covers reinsurance costs for individuals and small businesses in cyclone-affected areas. Reinsurance allows insurance companies to spread risks between multiple companies, and for policies in risk-prone areas, it is often the main driver of increasing premium prices. The U.S. does not offer a similar reinsurance grant.

Another grant in Australia allowed funds for repairs and rebuilding so the homes are less likely to be flooded in the future.

The Federal Emergency Management Agency (FEMA) provides money and other services to Americans if a natural disaster damages their homes or other personal items. President Donald Trump recently ordered an evaluation of FEMA to improve the program’s “efficacy, priorities, and competence” and proposed eliminating it completely.

Canada’s Proposed Low Cost Insurance Program

Last year was the most expensive year for Canadian insurance companies on record, with hailstorms, flooding, and wildfires increasing the number of claims paid out.

Additionally, inflation has made natural disaster damage more expensive to fix, a trend that is unlikely to reverse. According to the Insurance Bureau of Canada (IBC), Canadian insurers have faced a 115% increase in the number of property damage claims and a 458% increase in repair costs since 2019.

To help its citizens, the IBC plans to implement a low-cost flood insurance program for Canadian households in high flood-risk areas sometime in 2025. Americans can find flood coverage through FEMA’s National Flood Insurance Program. However, this program has also experienced rate increases, and its discounted rates may not be reaching the right people, according to the independent and non-partisan agency, the U.S. Government Accountability Office.

Similar to the United State’s FEMA program, Canada has given over $9 billion CAD, or almost $6.3 billion USD, in financial assistance through its Disaster Financial Assistance Arrangement to provinces and territories that have faced a large-scale disaster. However, critics say this program would be better used as disaster prevention funding.

Japan’s Rethink of Housing To Make Disaster Recovery Cheaper and Easier

Japan’s devastating 2011 earthquake and tsunami saw huge loss of life and severe damage to property. Since then, the country has updated its homes further, making recovery from natural disasters less expensive.

Strict building regulations have been implemented in Japan’s metropolitan areas to ensure that the cities can withstand major earthquakes. However, these regulations are not enforced on traditional homes in rural areas. This makes natural disasters more destructive, such as the New Year’s Day 2024 earthquake in the rural Ishikawa Prefecture, which destroyed more than 83,000 homes.

Unlike the United States, where older homes are sought after due to their higher quality, Japan’s older homes are typically too fragile to withstand natural disasters. In addition, home insurance premiums in rural areas with older homes are significantly more expensive than those on newer homes.

Japan has adapted to this with its unique housing culture, where new homes are only meant to last 30 years. These buildings are typically cheaper to build, making rebuilding easier and cheaper in the aftermath of a natural disaster.

The Japanese government also offers reinsurance to private insurance companies if there is a significant earthquake. This prevents insurance companies from passing reinsurance costs onto their customers.

In comparison, the U.S. government-backed flood insurance program, NFIP, has a reinsurance program that allows the government to obtain reinsurance from private insurance companies. Typically, adding reinsurance from an outside company will raise premiums for its customers.