The most troubling development for the many homeowners we’ve heard from since our last market-wide report has been the addition by the insurers’ of mandatory flood cover. And the extra cover hasn’t come free; we’ve heard from many whose premiums have doubled or more. Almost 60% of policyholders who we surveyed last year noticed a premium increase on their insurance renewal, and the most common reason given was the addition of mandatory flood cover. We weren’t shocked to discover, then, that the majority of the insurers we reviewed now include flood cover regardless of whether or not you live in a flood zone.
Of the 29 insurers and 64 policies we researched, only 1300 Insurance, BudgetDirect, and Youi policies exclude flood cover (as per the now standard definition), while AAMI, Allianz and NRMA will allow some customers to opt out.
Understandably, consumers who don’t live in flood-prone areas aren’t very happy that they may be subsidising people who do. “My premium hiked up 40% due to payouts for earthquakes, floods and bushfires,” one CHOICE member recently told us. “The risk of these happening in my area is extremely remote, but my insurer said all insurance premiums had to rise to pay for the risks in other areas.”
Before looking for a policy that excludes flood cover, make sure you’re really not at risk. Many insurers use local council data and the publicly available National Flood Information Database – sources you can also tap into to assess your flood risk.
Standard Definition of Flood: The following standard definition for flood has been approved by the Commonwealth and must be included in the insurance contracts of all insurance companies within the next two years. According to the regulations, the word "flood" means the covering of normally dry land by water that has escaped or been released from the normal confines of any lake, river, creek or other natural watercourse, whether or not altered or modified, or any reservoir, canal, or dam.
Source: Insurance contracts Regulations 1985