01.What's the story?
We've looked into the role flood cover has played in a recent pattern of premium hikes in home and contents insurance, including:
as well as giving a breakdown of the results of our own insurance survey.
Credibility check
The insurance industry can’t
get its story straight when
it comes to explaining the
shocker renewal notices
that landed in mailboxes throughout 2012. Many
policyholders who’ve contacted CHOICE
say the massive premium hikes to their
home and contents insurance have come
with the addition of mandatory flood
cover or a repricing of existing cover, but
companies have been cagey about how
they’ve determined the risk. Worse, it’s not
clear that risk has anything to do with it.
When we asked the Insurance Council of Australia (ICA) about the
outbreak of premium increases early last
year, the peak body cited, among other
things, the industry’s need to shore up
profit margins after a run of hefty
natural disaster payouts. At the same time,
though, the ICA claimed “policyholders
in high-risk flood areas may see the recent
inclusion of flood cover in their policies,
and a move towards risk rating their area,
reflected in higher premiums”.
If companies have been using
new techniques to assess risk, they
haven’t filled policyholders in on the
methodology. An executive manager at
one major insurer told us some companies
were using Google Maps, hardly a
precision tool for predicting water flow.
Nonplussed policyholders
CHOICE member Shirley B is still at a
loss as to why her NRMA premiums went
through the roof in 2012. “I had no contact
from the insurer initially other than
receiving the excessive bill,” she told us. “I
was absolutely shocked. We have lived at
this property for more than 30 years and
never been flooded, and to my knowledge
the property has not flooded previously.”
When Shirley called NRMA, the initial
explanation was that the company had
used local council information to assess
the flood risk. But then a different company rep called back shortly after and said the
increase was necessary due to the high
number of claims after the Queensland
floods and other natural disasters.
Shirley ended up dropping the
expensive flood cover but
was further confused
when she discovered
her neighbour’s
premiums, which
included flood cover,
were far lower.
We continued to
hear such stories
throughout 2012.
Justine W said AAMI
added flood cover to her
policy in May last year but
maintained it wasn’t the
reason her premium
jumped 100%. “There
was no information
from AAMI regarding
any risk assessment.
I had a surveyor from
the council knock
on my door after the
commencement date of my
policy to ask permission to
survey for flood levels, but this was well
after my premium had increased and
well after I’d been told I was covered
for flood.”
Rosie G’s explanation from NRMA of
why her home insurance went up 45% last
July left a particularly sour taste. After
explaining the company had reviewed
certain “rating factors” before raising the
premiums, NRMA claimed they weren’t
“able to give any specific details in relation
to what particular rating factors have
changed as information you have
requested is only available to our
underwriting department and is not
accessible to anyone outside that area”.
David P contacted us in October after
his RACQ home and contents premiums
jumped 500%. “RACQ didn’t make us
aware of any of their flood risk assessment
techniques. They have not used the best
available information, otherwise they’d
know our house was raised under a
state and local government joint flood mitigation program.” When David
asked RACQ to review it, the company
immediately dropped the rise to 450%.
As well, results of our nationally representative survey of 1435 home and contents policyholders back up the contention that insurance companies have been using the flood cover issue as a pretext to raise revenue, get rid of customers, or both.
Systemic issue
In addition to many other similar tales
involving a range of companies, we
received many emails from
members outlining
comparable scenarios
and naming
providers such as
GIO, RACV, RACQ and Westpac. The stories point
to a widespread pattern.
“As a veteran of 37 years
in this industry I love, I am
appalled at what is going
on,” one broker told us
in February last year.
“A ‘take it or leave it’
mentality is happening
with insurers, who
are purposely pricing
themselves out of
certain postcodes, namely
potential flood and water
damage claims, so that they can
keep the ‘good’ clients and dispense with
the ones who may cost them in the future.”
Perhaps not coincidentally, the
explosion in premiums was
accompanied by a blowout in
general insurance disputes
lodged with the Financial Ombudsman Service,
which saw a 35% increase in 2011-12. In
an equally disturbing and possibly related
trend, more consumers are forgoing
household insurance altogether due to
rising costs, according to Roy Morgan
research released in November last year.