Rising tide lifts premiums
Consumer groups hope changes to insurance cover offer greater protection.
Consumer groups hope changes to insurance cover offer greater protection. The federal government has announced it is "fixing" flood insurance. In the meantime, hundreds of people remain in dispute with their insurers after the Queensland and Victorian floods as what might be another wet summer approaches.The Financial Ombudsman Service (FOS) has received about 900 complaints about the handling of claims from those floods, which in January inundated more than two-thirds of Queensland and a quarter of Victoria, causing billions of dollars of damage while claiming many lives.The FOS has resolved about 450 of those cases and the General Insurance Ombudsman, John Price, says about half the rulings have gone at least partially the policyholder's way.Price has identified some key areas of concern, some of which might be addressed by the government's proposals, though consumer groups have their doubts.But the Ombudsman insists the number of disputes must be seen in the context of many thousands of claims settled satisfactorily."There was an absolutely huge number of claims arising from the floods at a time when there were other natural disasters," he says. "All of these claims combined, it was a mammoth effort [collectively] by the insurance industry."But what I would say is that there are some insurers [who did not do as well as other insurers] and some processes that were not handled as well as they should have been."SHONKY AWARDS WINNERConsumer group Choice recently gave the industry one of its annual Shonky awards, citing a Legal Aid Queensland report that says policyholders were actively dissuaded from making claims, had claims summarily dismissed or faced a confusing process.The Insurance Council of Australia, however, says the industry handled almost 130,000 claims relating to the Queensland floods and cyclone Yasi and of those only 3987 - or 3 per cent - were rejected. That tallies with historical rates for the success of home building insurance claims.When it comes to which insurance companies have not handled claims as well as they might, Price says insurers are not named in complaints that are reported publicly under the voluntary General Insurance Code of Practice.(See box above for one way to check an insurer's complaints history.)He says it's evident from the disputes that people are still confused about whether they're covered for flood or not.The FOS supports the plan for a single definition of flood, which is one of the recommendations the government said last week it would pick up from the National Disaster Insurance Review.Price also has concerns about the hydrology reports insurers rely on when deciding whether damage has been caused by storm (which generally is covered) or flood (which might not be). If both were involved, as happened last summer, the claim might succeed or fail depending on which happened first, the storm or the flood."We do have some concern with the hydrology information that's been provided because it's not clearly identifying the initial cause of inundation," Price says."We are also finding that a lot of people were misinformed when they were taking out their policies as to the extent of their cover."Sometimes the policyholder has been misinformed because the salesperson has not understood the extent of the flood cover, he says.'OPTING OUT' PROBLEMSPolicies that offer flood cover but with a "cap" have also emerged as a problem area. "We are concerned as to the advertising that surrounded those policies," Price says."We believe that [advertising] misinformed people; they thought they had full cover only to find out later it was limited."Along with a standard definition of flood, the federal government announced last week it would consult further on a proposal that all insurers must offer flood cover as part of home building and contents policies but with the right for policyholders to "opt out".Policyholders will receive a single-page "key facts sheet" setting out all the main features of their home and contents policies.However, a joint chief executive of the Consumer Action Law Centre, Catriona Lowe, fears that under this model, those who were most likely to opt out - thus reducing their premium - would be those most in need of flood cover and least able to cope with the effects of a natural disaster.She wants the government to adopt the review's recommendation that discounts be offered in areas where flood insurance is unaffordable.The centre also wants the government to take up the recommendation that all home insurance policies include total replacement cover for the total loss of the home.Stress test your home insurerThe Financial Ombudsman Service's (FOS) annual review, available on its website (fos.org.au), includes tables where you can see how frequently your insurer has had to front up.These "comparative tables" show the rate of complaint per 100,000 policies, by product and by insurer.The data also includes the average length of time it takes to resolve matters, the percentage of an insurer's disputes resolved by agreement and, of those that require an FOS ruling, how many go the policyholder's way or are in favour of the insurer.At the time of writing, the tables for 2010-11 were still awaiting release. It's due to be published at the end of the month.But, by way of example, in 2009-10 Zurich had the highest rate of complaints when it came to home building insurance, at 28.58 complaints per 100,000 policies, compared to an industry median of 10.15.Nine other insurers, including GIO, AAMI, Calliden, QBE, Elders and Westpac, were also above the median.In home-contents insurance, the Holland Insurance Company had the highest rate at 9.42, compared with a median of 3.49. Suncorp, Westpac, GIO, AAMI and RAC Insurance were among those above the median.In motor insurance, the median chance of a dispute going to the FOS was 7.25, while in life insurance it was just 2.77.Premium pricesThe hammering much of the country took at the hands of mother nature this year has resulted in higher home and contents premiums across the country, researcher Canstar Cannex says.Queensland tops the price-hike list with an average increase of 12 per cent, it says, though increases in individual, flood-affected postcodes go as high as 41 per cent.On a national basis, the good news is that 62 per cent of policies have had price increases of no more than 10 per cent but the bad news is that 17 per cent of policies have had premium increases of more than 20 per cent, with the rest in between.