RBA Says Australia's Banks and Insurers Are Resilient, but APRA Warns One in Four Homes Could Be Uninsured by 2050

Australia's central bank has told households and investors that the country's financial system is resilient, while the prudential regulator has separately warned that a growing share of homes could end up without insurance. The two messages come from different documents published months apart, but together they describe one of the central questions in Australian finance: whether the system can stay strong if more households cannot afford cover against the weather.

The Reserve Bank of Australia published its October 2026 Financial Stability Review on October 1. The review says the financial system has a good degree of resilience, with growing global and operational vulnerabilities. According to the central bank's media release, most households with mortgages should be able to cope with harder conditions even if house prices fell sharply, although there are pockets of stress, and most businesses should be able to manage elevated cost pressures. Australian banks are well positioned to keep lending in a downturn, and the risks from non-bank lenders remain contained because of their relatively small size. The main threats it lists are geopolitical tensions, vulnerabilities in global financial markets, advances in artificial intelligence and disruptions at critical service providers.

The chapter on resilience of the financial system adds numbers. The banking system's common equity tier 1 capital ratio, a core measure of loss-absorbing capital, was 12.4% in June 2026, well above regulatory requirements. In an adverse scenario in which GDP falls 3%, housing and commercial property prices fall 20%, unemployment rises to 6.3% and the cash rate rises to 5.6%, the review estimates the ratio would fall to about 11.6%. Banks hold loss provisions of about 0.7% of total credit outstanding, and their reliance on offshore wholesale debt has fallen. The review also notes that housing prices fell during 2026, that housing non-performing loans rose slightly in the June quarter, and that hardship requests have risen recently because of pressure on household budgets from inflation and higher interest rates. More than 90% of housing non-performing loans and more than half of business non-performing loans were well secured in June 2026.

On insurance, the RBA's assessment is brief but important. It says the general insurance sector is well capitalised and profitable, with capital ratios well above the amounts prescribed by the Australian Prudential Regulation Authority, but that margins are under pressure from frequent extreme weather. It also refers to APRA's March 2026 climate stress test, which suggests that unaffordable home insurance could rise sharply by 2050, and notes that this would increase mortgage lenders' exposure to climate risk.

That stress test is the second document. APRA published its Insurance Climate Vulnerability Assessment on March 24, 2026. It is a prudential stress test of how a changing climate could affect home insurance affordability and the protection gap, which is the extent to which home losses are not covered by insurance. APRA says clearly that it is not a forecast. It used two scenarios to 2050 aligned with the Network for Greening the Financial System: a higher physical risk scenario in which more frequent and severe weather pushes premiums up, and a higher transition risk scenario in which weather losses are less severe but construction costs rise significantly and push premiums up. Both assume no additional policy or physical adaptation of homes.

The findings are stark. About one in seven Australian houses is uninsured today, and under both scenarios this could rise to about one in four by 2050, which APRA says is roughly one million additional homes without adequate insurance. Rural areas would be hit hardest, with the gap possibly exceeding 40%. In the higher physical risk scenario, expected annual weather losses rise from about A$7 billion today to more than A$16 billion by 2050. APRA worked with five large general insurers, Allianz, Hollard, IAG, QBE and Suncorp, which together account for around 80% of the home insurance market by gross written premium. APRA Member Suzanne Smith said insurance plays a critical role in Australia's financial system, and warned that when insurance is not available, losses are more likely to be borne directly by households, banks or the government.

Insurance Business added detail from the same assessment. It reported that premiums rose an average of 7.2% a year from 2010 to 2025, compared with wage growth of 3.1%, and that taxes, levies and government charges make up about 21% of an average premium. New South Wales and Queensland hold about 60% of uninsured homes, and 77% of homes facing severe to extreme flood risk have no flood insurance. By area, the share of uninsured homes is about 11% in capital cities today and nearly 20% by 2050, about 20% in regional centres rising to over 30%, and about 25% in rural areas rising to over 40%. The same article notes that between 2015 and 2024, 33% of Australia's natural catastrophe economic losses were uninsured, compared with a global average of 57%.

What links the two documents is mortgages. A bank that lends against a house is relying on the house being worth at least as much as the loan. If a flood or fire destroys an uninsured home, the borrower may be unable to repay and the collateral is damaged. The RBA's reassurance about bank capital is therefore a statement about today's conditions, while APRA's stress test looks at a slower build-up of risk. Neither says banks are at risk now, but APRA's analysis shows how affordability could erode the protection that underpins lending.

APRA's recommendations are practical. Stakeholders should work together to reduce exposure to weather-related risks, pursue emissions mitigation and risk adaptation, strengthen the resilience of housing stock through protective infrastructure, retrofitting and risk-based land-use planning, and support affordability with innovative insurance solutions. For homeowners, the immediate steps are to check what their policy covers, to ask about discounts for mitigation such as roof upgrades or flood barriers, to compare quotes and to avoid letting cover lapse because of a premium increase without exploring alternatives.

The RBA's review also covers risks beyond insurance, including private credit, superannuation and cyber threats. It notes that frontier artificial intelligence has increased the speed, scale and sophistication of cyber threats, and that the RBA's assessment of the ASX found contingency arrangements for its Austraclear system during a prolonged outage are not yet adequate. Those findings show that resilience is an ongoing task rather than a settled state.