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With flood waters rising, there are warnings of a "climate-induced credit crunch" as natural disasters threaten the viability of home insurance. 

On Furphy Avenue, old letterboxes remain on empty blocks where homes once stood, before being washed away by flood three years ago.

At least five houses on this street have been demolished, many others are for sale.

At number 54, all that is left of Vicki and Geoff Woodhouse's home of 16 years are remnants.

"The whole interconnectedness of that neighbourhood is now gone and completely changed," Vicki says.

"There's a hollowness, it's sort of almost unfamiliar for us."

The houses here on the outskirts of Shepparton, in regional Victoria, fell victim to the disastrous floods of 2022.

More than 4,000 homes across the state were damaged or destroyed — 900 of those were in Shepparton.  

Furphy Avenue is emblematic of the growing risk climate change is posing to homes in suburbs across the country.

The impacts are already flowing through to home insurance, mortgages and the entire financial sector.

This town has been described as the canary in the coal mine — what happens here could be Australia's blueprint for success or demise.

Australia's uninsurable suburbs

Insurance companies' core business is understanding future risks. 

The information they use to do this is largely inaccessible to the public, but it determines how much cover insurers can offer and the premiums they charge.

While Shepparton has always been exposed to floods, climate change is increasing the number of properties in harm's way — and restricting the availability of insurance.

New data commissioned by the Climate Council lists Shepparton's CBD as one of the most vulnerable suburbs in the country for uninsurability due to climate-related risks.

This is the suburb of Shepparton, in the centre of town, which lies on the banks of the Goulburn River.

The latest analysis shows that 16,775 properties here — 88 per cent — are currently considered at "high risk" of becoming unaffordable or impossible to insure, due to the risk of climate-related damage.

In Kialla, where the Woodhouses' place on Furphy Avenue sits, that figure is around 79 per cent. And across the Greater Shepparton area, 57 per cent of properties are "high risk". 

The analysis, from Sydney-based company Climate Valuation, looks at a range of factors to calculate risk categories. 

It uses a measure that captures the costs of expected extreme weather and climate-related damage relative to the replacement cost of the average home.

Climate Valuation lists 86 suburbs across the country where more than 80 per cent of properties are deemed "high risk". These are called "critical risk zones". 

"That's not just an ad hoc property here or there, that's a whole suburb where 80 per cent of the properties are basically either uninsurable or becoming uninsurable," Climate Valuation CEO Karl Mallon says.

These figures are based on future modelling of climate change known as the "high emissions scenario" — where scientists assume little curbing of emissions and greenhouse gas and CO2 levels continue to rise.

Climate Valuation has also modelled the risk based on a moderate or medium emissions scenario and a low emissions scenario. 

The research looks at the risk of damage from extreme weather including flooding, bushfires, coastal inundation, extreme wind events and cyclones and how these risks are expected to get worse as temperatures warm.

Fire and riverine flooding are the most significant hazards in these at-risk suburbs, with some exposed to both.

Outside of the 86 identified suburbs, there are more than half a million properties at risk of going the same way without urgent investment into adaptation, according to the report.

Mallon warns some Australian neighbourhoods could become what he calls "climate ghettos".

"There are certain areas where you will start to see a negative spiral," he says.

"We don't use the concept of climate ghetto lightly. It's a very serious warning."

Mallon says insurance companies are already quietly leaving high-risk areas like Shepparton, or offering premiums beyond reach.

And some banks are joining them and screening mortgages accordingly.

The Australian Banking Association said insurance was a "priority issue" for the industry in trying to proactively identify and manage risk on their books, and "ensure access to finance for all Australians".

One of the major obstacles preventing reform is that no-one is willing to admit there's a problem, according to Mallon.

He says because banks and insurance companies have exposure in these sub-prime climate markets, it's not in their interests to raise the alarm.

"The worst thing that we can have is that everyone quietly walks away from the problem, and the person who's left is the home owner."

Enter the 'climate-induced credit crunch'

This is exactly what happened to Vicki and Geoff on Furphy Avenue. 

The height and destruction of the 2022 floods took many by surprise. 

"It kept coming and it kept coming … I didn't think that it could ever come that high," Geoff says. 

Their house was inundated. 

When the waters receded they were left with no walls, no kitchen, and no floors. Their bricks and stumps were condemned. All that remained intact was the roof. 

But the insurance company wanted to refit their property "like for like" and restore it "to its original standing".

"Why would you refit our home at the current floor level, which is setting me up to flood again?" Geoff says.

"It just didn't make sense."

On top of that, Vicki and Geoff believe their remodel would have been uninsurable.

"You've set me up with something that I'm not going to be able to get insurance for," Geoff says.

"Why would you do it? It's illogical."

Eventually, Vicki and Geoff negotiated a financial settlement, demolished their house on Furphy Avenue and relocated to a newer part of Shepparton on safer ground.

"Our hand was forced in a way through what we felt we'd be able to cope with going on from the flood," Vicki says.

This problem has ripple effects; it's not only those in disaster-prone areas that are affected. Since 2022, insurance premiums across the country have skyrocketed — one of the biggest contributors to inflation.

And in a sign this problem goes beyond the collective hip pocket, key industry players are warning the bedrock of the economy is at risk.

"Entire regions are becoming uninsurable," Allianz Global board member Günther Thallinger warned in an article on LinkedIn last month.

"This is not a one-off market adjustment. This is a systemic risk that threatens the very foundation of the financial sector.

"A house that cannot be insured cannot be mortgaged. No bank will issue loans for uninsurable property. Credit markets freeze.

"This is a climate-induced credit crunch."

Moving to higher ground

Mallon believes Shepparton is "a canary in the coal mine for Australia" in tackling this global problem.

"What we do in Shepparton, how we solve this, can be a blueprint for how we're going to solve this in hundreds of suburbs around Australia," he says.

"But if we don't solve it, it will also be a blueprint of what demise looks like."

Down the river from Furphy Avenue, the local football club holds one example of how Shepparton is trying to future-proof itself — financially and physically.

In the golden afternoon light, pre-season training is in full swing for the Shepparton Swans.

It's the best football ground in the league, club president Jarrod Sutherland boasts.

But their future here has been uncertain.

Three years ago this ground was completely submerged in floodwaters.

While the grass has returned, the old clubrooms are still waiting to be demolished.

It hasn't stopped the club from its core business, with volunteers stepping up to keep the game going and the AFL providing temporary change rooms.

"I've been proud of our whole club's attitude to the situation, everyone's stepped up and no one's whinged," Sutherland says.

"It's a testament to all of our players and our supporters."

Rebuilding infrastructure at this site comes with huge risks, with limited insurance available for future floods.

It's a problem for the Greater Shepparton City Council, which manages this asset along with many others that now have minimal flood insurance.

Prior to the 2022 floods the council had its assets insured for $20 million. That coverage has dropped to just $2 million.

It means the next time disaster hits, the council will be exposed.

"We have obviously a portion of our assets that need to be managed," Mayor Shane Sali says.

"Making them resilient, making sure that when we continue to reinvest in the city infrastructure, that it's not at a level of risk."

Sutherland says while the council initially wanted the club to relocate, the rooms will instead be built on higher ground.

"It's right next to town. It's an ideal location. It's a beautiful location," Sutherland says.

"Sporting is a perfect scenario for an area that is flood-prone."

He's confident the new infrastructure can be built to withstand whatever the future may hold.

"We know that potentially there could be another flood here," Sutherland says.

"But at the end of the day, we're going to have facilities that are above flood level."

Building back better

Not everyone can afford to adapt. Many are forced to run the gauntlet with no extra protection and no flood insurance.

Recent analysis from the Insurance Council of Australia (ICA) has found only 23 per cent of homes in the highest-flood-risk locations across the country have insurance.

The ICA found annual premiums in those areas were more than $7,000, and in some cases, exceeding $30,000.

The Shepparton mayor says those types of figures are being reported regularly by community members, including those who've never been impacted by floods.

"It's lazy policy-making and they're taking advantage of some of our most vulnerable that don't have a skill set to ring up and challenge insurance companies," Sali says.

Sali believes the council is being proactive about the risks facing the city, but that mitigation and adaptation measures aren't being taken into account by insurers.

He says this is demonstrated by the fact that homes in the newer estates in Shepparton were unaffected by the 2022 floods.

"We have been leading the way and climate change modelling is implemented into our new developments," Sali says.

"We've been leading the way with investment into infrastructure, where people can confidently live and work in our region and be above that flood level."

Climate Valuation's analysis, which gives a national snapshot of insurance risk, sits uneasily with Sali. He feels it doesn't reflect the reality of what's happening on the ground in local communities like Shepparton, at the top of the list.

"The risk associated with our city does not stack up and I completely rebut it," he says.

"Instead of taking a report that you can generate more revenue from, actually look at what's been undertaken from the cities."

Mallon says the purpose of this report is to identify high-risk areas, in the hopes that it will encourage local councils to investigate further.

As with all modelling, it has its limitations.

The vulnerability to climate-related hazards is based on a standard modern dwelling with "moderate resilience" — for example, it's assumed that houses are built 50 centimetres off the ground.

Climate Valuation points out at the moment, insurers don't take into account individual building characteristics, though it hopes they will in the future.

Ultimately, insurance companies are using data like this to make decisions about how to manage their risk.

Mallon says blaming the industry won't solve the problem.

"Forcing the insurers to do things which are commercial suicide is not a solution," he says.

But he agrees insurance companies should be better at recognising resilience measures.

"At the moment, there is a tendency to say, 'you're in a bad suburb or you're in a bad postcode or you're on a bad street'," Mallon says.

"We need the insurers coming to the table and saying if you've done things to de-risk the property, we will recognise that."

In a statement, the ICA confirmed that the insured cost of extreme weather events had dramatically increased over the past five years, to $22.5 billion.

But it disputed the suggestion that insurance companies were "walking away" from whole suburbs.

"Insurance remains available even in the most risk-exposed regions of the country," a spokeswoman said.

One brick higher

While many parts of Australia are already seeing the impacts natural disasters can have on insurance premiums, understanding how this could change in the future is uncertain.  

Climate scientist Andrew King says it's difficult to model the effects of climate change at such a localised level.

"We have a really good understanding of what's caused global warming and the global average change and some of the large-scale changes," he says.

"Once you get down to the local level it's hard, there's generally more variability and it's harder to make confident predictions."

Councils across the country are grappling with how they incorporate climate models into their disaster resilience planning.  

The Greater Shepparton City council uses flood modelling from the Goulburn Broken Catchment Management Authority (GBCMA).

The authority’s floodplain manager Joel Leister says all new developments in Shepparton must be built above the 1-in-100-year flood level, including allowances for climate change.

But he acknowledges that over time, houses built above today's flood level may be impacted by future floods.

"There will come a point in time where they will be below the flood level," he says.

"Climate change is a challenge for all practitioners, about what we do."

Leister says that the older suburbs in Shepparton were the worst impacted in 2022, even those built after record-breaking floods in 1974.

"After 1974, anecdotally people put their house one brick higher," Leister says.

"In some areas, the 2022 floods were a little bit bigger than the 1974 flood, so these houses still got impacted again, unfortunately."

Despite being at peace with their decision to leave Furphy Avenue, Vicki Woodhouse still feels a profound sense of loss.

"We made that decision for many reasons, practical reasons, emotional reasons, physical health reasons," she says.

"I miss the open space, just that vastness."

She and her husband have been able to relocate and are getting settled in their new home. But they are concerned that other flood victims haven't had the same resources as them.

"We came out alright, but I don't think a lot of other people have," Geoff says.

"There was some money given to people who weren't insured.

"So that you refit — because that's all you can afford to do — and you're in trouble next time."

They hope that with adaptation Furphy Avenue and other communities around the country will survive, but they acknowledge it might not always be possible.

"When it's not flooded, it's beautiful," Geoff says.

"It's a matter of trying to flood-proof or fire-proof. 

"In some places it's going to take a home being lifted by a metre — who is going to pay for that?"

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