Despite the recent problems, one huge positive consumers can take out of the recent strife is that it has spurred the government on to introduce major reforms. After the ACCC blocked the Insurance Council of Australia from implementing a standard definition of flood in 2008, changes to the law mean a standard definition of flood will apply to home and contents insurance.
Many insurers have already adopted this definition on flood, which we have copied below for reference:
UPDATED 18 JUNE 2012: 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.
A commitment has also been made to introducing Key Facts Sheets, which will give consumers a much better shot at being able to compare policies on a like-for-like basis.
Further possible reforms that haven’t yet been finalised are whether flood insurance should be mandatory or instead provided on an ‘opt-out’ basis. This proposal has thus far seemingly divided people. See Your Say to find out what people have been saying.
While it’s great to see the ball moving on much-needed reforms, serious questions are being asked of the government, including federal, state and local councils, about what, if any, meaningful disaster management plans are in place, and whether they have been effective in areas known to be flood prone.
A recent Royal Commission-style inquiry in Queensland culminated in a 654 page report that made 177 recommendations on the subject. Among the suggestions are calls for select councils to conduct immediate flood studies and standardise terms and procedures. In general, the report is a call for better disaster management to replace the baffling bureaucracy and near pointless politicking .
Insurers too have expressed concern about existing disaster planning in some cases. “There has been some progress with regard to mitigation, but all levels of government need to be doing more to mitigate against flood,” says Annabelle Butler, Executive Manager of Public Policy and Stakeholder Relations at Suncorp Group.
“The differences in experience for Wagga Wagga and Charleville[in NSW], when compared to Roma and Emerald [in Qld], illustrate this most clearly. While central Wagga and Charleville were spared from flooding because of sound planning and the foresight to build a flood levee - in the case of Wagga, decades ago - Roma and Emerald were once again flooded. Building on a flood plain or river delta and not mitigating will never be a good combination,” says Butler.
“It should be noted that 10 years ago flood cover was difficult to purchase in Australia, so there has been great progress in this area. While improvements in flood mapping in recent years have made offering cover possible and allowed accurate pricing of risk, it has also meant at-risk properties have been identified,” says Butler.
James Rickards, Head of Corporate Affairs at NRMA Insurance also indicates that better planning will help mitigate risk and reduce the burden in insurers, and ultimately consumers.
“We think that the policy response to recent natural perils must go beyond insurance and also focus on prevention. All levels of government should significantly boost their low investment in mitigation infrastructure (such as levees and barrages) that will protect homes and businesses, and lower the cost of risk,” says Rickards.
CHOICE is concerned people in officially flood-prone areas may be charged a much higher premium – some insurers have indicated a surcharge of as high as 1000% for the highest flood risk they cover. It’s estimated that approximately 3% of Australian properties are at grave risk of flooding, and cover - let alone affordable cover - may not be available to them.
James Rickards has also indicated affordability may be a problem for some homeowners. “There will always be a small portion of homes across the country where flood is a certainty — it’s not a matter of if it will flood, it’s a matter of when. For these Australians, the flood premium is likely to be high and affordability is an issue.”
Apart from the human cost of disasters and the related strife for those who had homes lost or damaged, there was also a hefty $5 billion disaster bill in 2011 (more than double the total in 2010). Whether it is through government taxes or increased premium prices, ultimately all Australians end up carrying the burden.
Our recent CHOICE insurance satisfaction surveys indicated that 89 percent of people or more have seen price rises since their last renewal, with many commenting that increases were 20-30 percent on top their last premium.
Making certain home insurance remains accessible is a key concern for CHOICE. Fortunately, competition in the home insurance market is plentiful and there are ways to leverage your situation to reduce costs without compromising protection for your home and contents.