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The company line: what the insurers say

Insurance companies gave CHOICE a strikingly different take to the consumers we’ve heard from on premium increases. In some instances, the accounts of policyholders flatly contradict the version of events put forth by insurers. In addition to risk, NRMA, AAMI, Apia and RACV all cited the rising costs of reinsurance as an additional driver of premium increases.

NRMA acknowledged it uses council data to help determine risk, but said it also relies on “a range of other data, including specialist mapping, terrain and hydrology reports, watercourse mapping and insurance information”. The company claims it “reassesses individual properties at the time of renewal… [and] contacts all customers who receive an increase in their premium due to flood cover”.

AAMI added flood cover to new and existing polices in February last year and told us it had updated its flood risk information through “a combination of newly available local council data, as well as feeding in our own claims data gleaned from flooding events over the past couple of years. Our sophisticated pricing engine allows us to determine the level of flood risk each individual property is exposed to, and price that risk accordingly”. The spokesperson added that policyholders can opt out.

Apia took a similar line to AAMI, saying “we work with industry experts who have a lot of experience in the area of flood risk to understand the level of differences between each individual property. This additional information is over and above the local council information that is available through council flood maps.” Apia policies have included mandatory flood cover since the early 2000s, but the spokesperson acknowledged that “there have been premium movements in the past year. With each natural disaster, more information becomes available and our previous assumptions are checked. These may result in a change in the way we determine the risk to a property or properties.”

RACV general manager Paul Northey said new premiums were calculated “for each individual property according to the risk of damage to their property from flood” after the company made flood cover a standard inclusion in January last year. He also argued RACV uses a wide range of its own risk-assessment methods and regularly updates risk information, but acknowledged that “there will be some instances of individual properties where we have not taken into account the most recent changes to local circumstances”. (The company offers a review process through which policyholders can question “individual assessments”.)

CGU told us it added mandatory flood cover to policies last year “following feedback from our customers and business partners. The decision not to allow opt out was based on our own research that showed those most in need of flood cover were also those most likely to choose to go without.” The company says the 15% of policyholders who were deemed high risk “were advised of the reasons behind the decision”. Like the others, CGU maintains it relied on existing flood data as well as “drawing on our own research, including the assessment of existing topographical and hydrological maps, water flow maps and accumulated insurance data”. CGU was one of the few companies we spoke to that said recent premium increases had nothing to do with offsetting high claims payouts. “We don’t recoup past claims costs. CGU’s premiums reflect the risk posed to the property being insured.”

Data down the drain

Speaking for the industry in late November last year, the ICA reiterated what it told us in February 2012 when the shocker renewal notices began rolling in. A spokesperson said “the cost of natural disasters, including storms and floods, has had a significant impact on insurance premiums as companies adjust their pricing to take account of individual risk levels, with sharper increases in areas that have a history of natural disasters, or an exposure to future events”. The ICA once again called on local governments to improve flood mapping, beef up mitigation infrastructure and contribute any new information to its National Flood Information Database (NFID).

But the ICA also suggested policyholders don’t have a right to know which assessment methods may have been used or whether they were fairly applied. “Insurers base their pricing on factors and data each company deems appropriate,” the spokesperson said. This lack of transparency is very unhelpful to current or future homeowners, since any new risk information dug up by insurers is not passed on to homeowners, local governments, the NFID or the government’s National Flood Risk Information Portal. NRMA told us “the data we use is very complex, and we overlay different types to give us a complete picture of the risk. For this reason we do not share our data.” CGU was blunter, claiming that “to protect the integrity of our investment we do not place this information into the public forum as we do consider it commercial in confidence”. AAMI and Apia maintained they share such information selectively.

The ICA told us that the NFID is limited to publicly available information from local and state governments and “insurer-owned data” is not shared. Such opacity runs counter to the ICA’s call for greater data sharing, an appeal that appears to be a one-way street. “If a consumer has evidence their property may have been incorrectly assessed and is in a low-risk flood or fire area, they are encouraged to present this information to their insurer,” the ICA said.