Home-and-contents insurance customers who have been hit by the latest round of flooding events should be better protected thanks to reforms put in place following the Queensland floods of summer 2011, but many insurers still have some wriggle room when it comes to defining "flood".

Insurance companies and homeowners often don't see eye to eye on the definition of a flood. Your property could be completely underwater, but depending on where the water came from your insurer might not agree that you've actually experienced a flood. Is it storm run-off? Flash flooding? Or did the water come from a river or other water source overrunning its banks? Unfortunately, many policyholders have found out the hard way that it's the source of the water, and the small print on their insurance policy, that make the difference when it comes to making a claim.

'Flood' defined

In line with changes brought about by the National Disaster Insurance Review, as of July 2014 insurers will have to define flood as "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".

CHOICE's home and contents market-wide reviews reveal that a number of insurers have already adopted this definition. But there is still plenty of room for confusion.

Which event came first?

Many homeowners may understand that storm runoff and riverine flood are different events, and that storm runoff and the resulting flash flooding is not the same as a flood as defined above, but it's also important to know that the Financial Ombudsman Service (FOS) has ruled in favour of the consumer on a number of claims rejections where it was determined that storm runoff occurred before riverine flooding.

In other words, the covered event happened first.

Misleading advice

The FOS has also held insurers accountable for disputed claims if the salesperson gave consumers the impression that flood cover was included in their policy, regardless of what the small print actually said.

Other changes to the Code of Practice

The Queensland floods in 2011 also brought about changes in the General Insurance Code of Practice that are currently in effect:

  • A four-month deadline for accepting or rejecting a claim unless there are extenuating circumstances, including "extraordinary catastrophe or disaster as declared by the Insurance Council Board".
  • A 12-week deadline for reports by external experts, such as hydrology reports; the sharing of these reports with policyholders; and an explanation of how they affect claims decisions, if requested.
  • Enhanced employee training so that company staff can "carry out their claims-handling tasks and functions competently, and deal with customers professionally", with a focus on understanding a policyholder's particular circumstances.
  • A new "right to claim", says insurers, "will not discourage you from lodging a claim, even if we are of the view that it is unlikely to be accepted".

In addition, the industry has promised to release future Code Compliance Committee reports that detail significant breaches of the code by insurers.