The consultation paper on flood insurance reforms released by Assistant Treasurer Bill Shorten today is a timely document – though for some the timing couldn’t be worse. Had its recommendations been implemented before the recent Queensland floods, thousands of homeowners would likely be rebuilding instead of facing financial disaster.
For more information on insurance, including a detailed breakdown of more than 40 policies, see CHOICE's Home and contents insurance review.
Claims denials under way
Legal Aid Queensland consumer protection lawyer Catherine Uhr – one of many who are assisting homeowners with claims disputes – told CHOICE the bad news is starting to arrive for many Queenslanders.
“We’re looking at large-scale refusals. Many people have been incredibly shocked to find out they have nothing but studs, cement slabs and a roof left and no insurance payout to rebuild. And there are still a lot of letters in the mail.”
The consultation paper says many Queenslanders were covered for something described as “flood” in their policies but not the kind that wiped their homes off the map. In particular, many assumed their cover for events described as “accidental flooding” or “flash flooding” included flood waters originating from a river – or “riverine” flooding.
They now know otherwise. As it turns out, most policies exclude this kind of cover, though knowing this beforehand would have been a tall order. According to Ms Uhr, there are nearly as many definitions of “flood” as there are policies.
The consultation paper says some policies “might contain an exclusion for riverine flooding cover that would be evident on a careful examination”. Ms Uhr says careful examination often doesn’t help.
“I’m a lawyer who has been focusing pretty much exclusively on flood insurance since the floods happened, and there are some policies that I read and re-read and still don’t know what they’re on about. It’s as clear as mud.”
The consultation paper proposes a single definition of riverine flood – one that is clearly distinguishable from flash floods that originate in rainfall runoff, which most policies cover under the category of storm damage. It recommends riverine floods be defined in the same way in all policies – an idea that CHOICE backs in principle.
The Insurance Council of Australia (ICA) – an industry body that represents the interests of insurance companies – introduced the idea of a “voluntary common definition” for inland floods in 2008 as part of its Flood Insurance Project. The ACCC rejected the proposal on the grounds that there would be no overall public benefit and that the proposal might work to the advantage of insurers more than policyholders. Ms Uhr also thinks a common definition could result in a higher rate of denials.
Nevertheless, discussing a common definition is a step in the right direction. The consultation paper suggests that riverine flood should be defined as “the covering of normally dry land by water that has escaped or been released from the normal confines of any lake, or any river, creek or other natural watercourse, whether or not altered or modified, or any reservoir, canal or dam.”
The definition appears to be a step in the right direction and an improvement over the fuzzy language in many policies – the kind that left far too many Queenslanders thinking they were covered.
One page summaries
After the floods “a number of policyholders reported that they were not aware, until after the event, of important aspects of their insurance policy”, the consultation paper says.
That’s because Product Disclosure Statements are long, complicated and sometimes indecipherable. The paper recommends all policies be fronted by a one-page summary, clearly outlining what is and what isn’t covered and the extent of the cover. This is an idea CHOICE strongly endorse.
Doing the maths
ICA told CHOICE last week that 3281 out of 109,390 residential property claims have so far been denied for the Queensland floods and Cyclone Yasi combined – or 3%.
CHOICE thinks these numbers may be misleading, since the ICA figure is the percentage of all claims made, not just residential property claims. ICA declined to provide figures on denied residential property claims as a percentage of residential property claims only. At the same time, ICA says that very few policies offer riverine cover. We’re hoping for clearer and more complete information as this story develops.
CHOICE welcomes the government’s effort to rectify the longstanding confusion about which types of flood events policies cover but wishes it didn’t take the financial devastation of thousands of consumers to bring the issue to Canberra's attention.
If your flood claim is denied
- The source of the water is a key factor in determining whether or not the damage is covered - carefully read the Product Disclosure Statement in your policy and note whether you are covered for "storm damage' (originating from rainwater) or "flood damage" (originating from a river or other watercourse).
- If you believe your policy indicates you are covered but your claim has been denied call the Financial Ombudsman Service (FOS) on 1800 337 444. This is a dedicated hotline for disputes arising from natural disasters. You can also email the FOS disaster team.
- If your case is accepted you will be assigned a caseworker and asked to provide information, including: why you are dissatisfied with the insurer’s decision; how you calculated the amount you are claiming; copies of relevant correspondence between you and the insurer; photographs or video footage; reports and/or statements and eyewitness accounts.
- If you believe you were not properly informed about flood cover, provide brief written details of the discussions you had with the insurer when you took out the policy.