Tide turns for insurers

TWO of Australia's biggest insurers expect to introduce full flood cover by early next year, substantially boosting the number of households that will have automatic protection from a full range of natural disasters.

By InvestSMART · 15 Jul 2011

By InvestSMART ·
15 Jul 2011

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Coming after a backlash directed at the industry after summer's devastating floods in Queensland, Insurance Australia Group and Suncorp aim to have full flood cover as an option in all their brands.

The move is partially aimed at heading off the prospect of the government stepping in and forcing insurers to offer flood cover to all customers, regardless of their risk of living in a high-risk zone.

At present, a little more than half the insurance policies bought in Australia provide automatic cover for flood, with some policyholders caught out by not being covered for flooding as a result of rising rivers or creeks.

As submissions were handed over to the Natural Disaster Insurance Review, private insurers called for greater efforts to prevent floods hitting residential areas.

The review was launched by the Gillard government in response to the flooding disasters that hit Queensland earlier this year.

IAG chief executive Mike Wilkins urged caution when it came to the government stepping in to provide a solution to flood insurance.

"We don't think there's been a systemic failure of the insurance market here,"

Mr Wilkins told BusinessDay.

Suncorp's head of personal insurance, Mark Milliner, said: "There should be mitigation rather than subsidisation of the flood problem."

Flooding regularly hits 7 per cent of residential addresses in Australia, causing about $450 million in annual damages, according to Insurance Council of Australia figures.

About $110 million has been spent on disaster mitigation by Canberra over the past four years,

although insurers argue more should be done, given

a small proportion was

spent on protection from floods.

"A repeat of 2011 flooding, damaging the same homes, will be a failure of mitigation, not a failure of private market insurance," the Insurance Council of Australia said.

The council rejected proposals for the introduction of a government-backed insurance pool to cover flood risk, arguing this would be an expensive and complex exercise.

The council said that some home owners in high flood-risk areas should be given some form of government-backed subsidies to help them

pay for their insurance

costs.

The review is scheduled

to present its final report

to the government by the

end of September.

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Frequently Asked Questions about this Article…

What flood cover changes are Insurance Australia Group (IAG) and Suncorp planning?

According to the article, IAG and Suncorp expect to introduce full flood cover by early next year, making full flood cover an option across all their brands. The move is aimed at boosting the number of households with automatic protection and responding to public concern after recent Queensland floods.

How many home insurance policies in Australia already include automatic flood cover?

The article states that a little more than half of insurance policies bought in Australia provide automatic flood cover. That means a significant number of policyholders can still be caught out by flooding from rising rivers or creeks if they don't have full cover.

Why are insurers saying flood mitigation is better than subsidised flood insurance?

Suncorp’s head of personal insurance, Mark Milliner, is quoted saying 'There should be mitigation rather than subsidisation of the flood problem.' Insurers and the Insurance Council argue that preventative measures to stop floods hitting residential areas are more effective than long-term subsidies, which they say could be expensive and complex.

What financial impact does flooding have on Australian homes, according to the Insurance Council of Australia?

The Insurance Council of Australia figures cited in the article estimate flooding regularly hits about 7% of residential addresses in Australia and causes around $450 million in annual damages.

What is the Natural Disaster Insurance Review and when will it report its findings?

The Natural Disaster Insurance Review was launched by the Gillard government in response to the Queensland floods. The review has collected submissions from insurers and others and is scheduled to present its final report to the government by the end of September.

Could the government force insurers to offer flood cover to all customers?

The article explains that insurers’ moves to expand flood cover are partly designed to head off the prospect of government intervention that would force insurers to offer flood cover to all customers regardless of individual risk. IAG’s CEO Mike Wilkins also urged caution about government stepping in, saying he didn’t see a systemic failure in the insurance market.

What do insurers think about a government-backed insurance pool for flood risk?

The Insurance Council of Australia rejected proposals for a government-backed insurance pool to cover flood risk, arguing such a pool would be expensive and complex. The council did say some homeowners in high flood-risk areas might need government-backed subsidies to help pay insurance costs.

How much has the government spent on disaster mitigation and is that seen as enough?

The article notes Canberra has spent about $110 million on disaster mitigation over the past four years, but insurers argue more should be done because only a small proportion of that spending has gone to flood protection.