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Alan Kirkland: 'When is a fire not a fire?'

CHOICE CEO on why the government must intervene on bushfire definitions in home and contents insurance.

australian bushfire approaches tuncurry nsw
Last updated: 26 February 2020

This summer's bushfires have had a devastating impact on communities, wildlife, emergency services workers, and the natural environment. They have also had a significant impact on the Australian economy. 

Some estimates put the costs at over $100 billion dollars for this fire season alone, but even the best economic modelling can't capture all the impacts on our communities and local economies harmed by these fires.

When events like this occur, the insurance industry plays a vital role, helping communities recover from major events. This role is based on the common understanding that when the worst happens, our insurance policies will be there to help.

When we recently asked Australians what they expect of their insurance, the public response was swift. More than 35,000 Australians agreed that when a fire damages your home, being able to claim upon your insurance should be a straightforward proposition.

alan and julia discussing petition

CHOICE head of policy and government relations, Julia Steward, shows CEO Alan Kirkland the petition with 35,000 Australians calling for clear fire definitions.

But there is no standard definition of "fire" in home and contents insurance. Of the 26 major policies CHOICE experts examined recently, we found problems with 70% of the "fire" definitions, and major issues with 25% of policies.

We know that insurers can have fair terms. Good examples commit to cover you for damage that results from a bushfire, pure and simple. Insurers with good definitions include Allianz, ANZ, CGU, Comminsure and TIO.

Sadly, there are too many examples of insurers with terms that are unnecessarily complex, with confusing exclusions or terms that CHOICE considers to be downright unfair. These include major brands like Aami, Apia, Budget Direct, Coles, GIO, ING, QBE, Virgin Money and Youi.

Some of these policies don't commit to cover you if there aren't flames present on your property – so you may not be covered for damage caused by smoke or extreme heat. Others will only cover you if a building within 10 metres of your home catches fire. These tricky terms are far from the simple expectation that most people have when they take out insurance for fire damage.

We found problems with 70% of the 'fire' definitions, and major issues with 25% of policies

We don't need to look very far back to see what can happen when insurance definitions are confusing and unclear.

When the devastating 2011 floods happened in Queensland and Northern NSW, many homeowners who thought they were covered had claims rejected because the type of flooding they had experienced didn't match the definition in their insurer's policy.

After overwhelming public pressure to put an end to this unconscionable practice, a standard definition of "flood" was introduced in 2012. It was applauded by the Insurance Council of Australia at the time as "a positive example of the insurance industry working with the federal government to better protect communities from known risks."

You may not be covered for damage caused by smoke or extreme heat

The ICA failed to mention that the government was forced to intervene, after the industry was unable to agree on an acceptable definition.

When CHOICE raised the confusing nature of "fire" definitions in insurance contracts recently, the industry played down the problem. It didn't dispute our analysis. Instead it defended its position, saying that no claims had yet been denied. Essentially, they said "just trust us".

But we need to be able to rely upon more from our insurers than a "just trust us" approach. While in these current circumstances insurance companies may play nice, people living in bushfire-affected communities want the certainty that comes with a clear policy that covers them for fire – no ifs and buts.

burnt tree showing new growth

People in bushfire-affected communities want the certainty that comes with a clear policy that covers them for fire – no ifs and buts.

Entire regional and rural communities and economies have been devastated this bushfire season. The government has stepped up with much needed funds to help these communities rebuild and recover, especially for those that rely on tourism and farming.

But many of these communities, now and into the future, will continue to rely on their insurance to rebuild.

That's why today, CHOICE will be in Canberra asking the federal Treasurer Josh Frydenberg to fix this problem. More than 35,000 Australians have joined CHOICE in calling for clarity on the definition of terms like "fire" in insurance contracts.

If the industry won't even acknowledge there's a problem, the government needs to intervene

This solution has political support. In 2017, a Senate Inquiry recommended that insurance policies have standard terms so policyholders could better understand what is and isn't covered. In December 2019, a report from the ACCC also recommended standard terms in insurance policies. 

For now, the global spotlight on the Australian bushfires has helped keep the insurance industry accountable. But self-regulation and goodwill won't be enough – nor should we settle for it. If the industry won't even acknowledge there's a problem, the government needs to intervene.