Shorten to define 'flood'

THE federal government has tried to develop a standard definition of flooding, after many insurance customers were caught out by the fine print of their policies.

By InvestSMART · 5 Apr 2011

By InvestSMART ·
5 Apr 2011

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THE federal government has tried to develop a standard definition of flooding, after many insurance customers were caught out by the fine print of their policies.

Following talks with insurers, Assistant Treasurer Bill Shorten will today release a public consultation paper that puts forward the government's view on a common definition.

The move, an industry first in Australia, could extend flood coverage to thousands of policyholders who this summer found their flood cover excluded damage from "rising rivers".

Not all home insurance policies cover flood damage, but most cover storm-related damage.

Up to 60 per cent of Australia's home owners are estimated to be lacking cover for flood damage.

Mr Shorten will unveil the paper at a community meeting in Ipswich, one of the hardest hit areas in the south-east Queensland floods. The government is also working to make insurance policies easier to understand, by encouraging companies to replace jargon with plain English.

Insurance Council of Australia chief executive Rob Whelan said last week agreement was being reached on a standard flood definition.

"We've been through a process with the insurers," he said. "We've put forward a proposition to government, they've responded and we've responded back."

But senior insurance industry executives argue that a common flood definition will not guarantee full coverage for many parts of Australia. They also warn that reinsurers may not provide coverage for flooding a?? even with a common definition.

Three years ago, the industry found common ground on a flood cover definition that was rejected by the Australian Competition and Consumer Commission. ACCC chairman Graeme Samuel has defended that, saying it was designed to limit cover for home owners not provide it.

Mr Shorten will next week outline the terms of reference and reporting time frame for the National Disasters Insurance Review.

QBE Insurance is expected to tell investors at its annual meeting this morning about its exposure to recent catastrophes. QBE, which generates the bulk of its earnings overseas, is expected to reiterate its guidance of an insurance margin of 15-18 per cent this calendar year.

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Frequently Asked Questions about this Article…

What is the federal government proposing about a standard definition of flooding?

Assistant Treasurer Bill Shorten is releasing a public consultation paper that sets out the government's view on a common definition of flood. The paper, unveiled at a community meeting in Ipswich, follows talks with insurers and is an industry-first attempt in Australia to create a consistent flood definition.

How could a common flood definition affect homeowners' flood coverage?

A common definition could extend flood coverage to thousands of policyholders who this summer found their claims excluded — for example, damage labelled as caused by 'rising rivers'. However, it won't automatically change every policy; coverage still depends on insurers' terms and reinsurance availability.

Do all home insurance policies in Australia cover flood damage?

No. Not all home insurance policies cover flood damage. The article notes most policies cover storm-related damage, but up to an estimated 60% of Australian homeowners may lack specific cover for flood damage.

Will adopting a single flood definition guarantee flood cover across all regions?

Senior insurance executives warn it won’t guarantee full coverage everywhere. Even with a common definition, reinsurers may choose not to provide flood coverage for some areas, so a definition alone may not deliver universal cover.

What are insurers saying about agreement on a standard flood definition?

Insurance Council of Australia CEO Rob Whelan said agreement was being reached on a standard flood definition and described an ongoing process of proposals between insurers and government. But industry leaders also caution limits to what a definition can achieve.

What happened to a proposed flood definition three years ago?

Three years ago the industry reached a common definition of flood that was rejected by the Australian Competition and Consumer Commission. ACCC chairman Graeme Samuel said that earlier definition appeared designed to limit cover for homeowners rather than expand it.

What is the National Disasters Insurance Review and when will it be outlined?

The National Disasters Insurance Review is a government review into disaster insurance arrangements. Bill Shorten is due next week to outline the review’s terms of reference and its reporting time frame, according to the article.

How might recent catastrophes affect listed insurers like QBE and what has QBE signalled to investors?

QBE is expected to address its exposure to recent catastrophes at its annual meeting. The article says QBE, which earns most of its income overseas, is expected to reiterate its guidance for an insurance margin of 15–18% for the calendar year.