Insurers have been urged to slash premiums on homes that have been adapted to better withstand fire, floods and other climate change-fuelled disasters.
Assistant Treasurer Stephen Jones says the failure to reward households and communities for adapting their homes by lowering insurance premiums sends “all the wrong signals”.
“If they are lumped with the same premium as people who are not taking those steps, then that’s unfair,” he said on Monday.
"Not only is it unfair, but it’s also bad business and bad economics."
The assistant minister also said insurers should be advising households on what they could be doing to bring down their premiums.
Addressing the International Congress of Actuaries in Sydney, Mr Jones said it "makes little sense" to subsidise insurance and encourage people to build "the wrong buildings in the wrong places".
"This is just orthodox economics."
Mr Jones said climate change was hitting lower-income households hardest.
"They’re the ones who live in valley rather than on the hill, and who cop the heat of the sun without a sea breeze to take the edge off it."
The assistant minister said lower-income families were also the least likely to be able to afford mitigation work, such as installing fireproof shutters or lifting power sockets out of reach of floodwaters.
These same households were also more likely to struggle to afford insurance, with the rates of non-insurance and underinsurance on the rise.
"In response to the increased risk, premiums continue to rise," Mr Jones said.
"And with that, households face difficult decisions between insurance and other expenses."
