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Natural Disaster Insurance Review recommendations released

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Assistant Treasurer Bill Shorten this afternoon released the recommendations of the Natural Disaster Insurance Review, which encompass flood risk management, insurers’ claims-handling and dispute resolution processes, and the provision of flood insurance.

Under the review’s proposals, every Australian seeking to purchase or renew home and contents insurance will be offered flood cover, but will have the option to “opt out”.

The recommendations of the review, which was commissioned to examine insurance for flood and other natural disasters after last summer’s floods, “are a good place to start in mitigating the risk of disasters and making sure everyone has the appropriate insurance arrangements to set them on the path towards recovery after disaster strikes”, Mr Shorten said.

The recommendations include:

  • A standard definition of flood
  • All insurers must offer flood cover as part of home building and home contents insurance policies, while giving consumers the opportunity to “opt out” of that cover
  • The Government will spend up to $12 million to establish a flood risk information portal
  • A one-page “key facts sheet” to explain the major aspects of a policy
  • A reinsurance pool for high-risk properties
  • Lending institutions to remind borrowers annually of their obligation to be insured
  • Reforms to the General Insurance Code of Practice.

Standard definition of flood:

The standard definition of flood will be used if the insurer offers flood cover in their home building, home contents, small business and strata title insurance policies.

The Government will release draft regulations about the standard definition for consultation by the end of the year. The definition is:

Flood means the covering of normally dry land by water that has escaped or been released from the normal confines of: 

A. any lake, or any river, creek or other natural watercourse, whether or not altered or modified; or B. any reservoir, canal, or dam.

Mandatory opt-out:

The Government is also consulting on a proposal that all insurers must offer flood cover as part of home building and home contents insurance policies, while giving consumers the opportunity to “opt out” of that cover.

Stakeholders will have the opportunity to comment on the proposal, following the release of a consultation paper today.

“This proposal will increase the availability of flood insurance across Australia, while improving transparency and choice for consumers,” Mr Shorten said.

Flood risk information portal

The Government will also commit up to $12 million to establish a flood risk information portal.

Attorney-General Robert McClelland says the review highlights the need to improve availability and consistency of flood risk information, which plays an important role in emergency management, land use planning and environmental management as well as informing the setting of insurance premiums.

“The Government will develop a flood risk information portal, hosted by Geoscience Australia, to provide a single access point to existing flood mapping data,” he said. “The Commonwealth will drive this process in close consultation with state and territory governments.

“The portal will be complemented by the development of national guidelines, covering the collection, comparability and reporting of flood risk information. Once endorsed, these guidelines will contribute to improved data quality and consistency.”

Mr McClelland says the states and territories have expressed their support for these initiatives.

“At last Friday’s meeting of the Standing Council on Police and Emergency Management, ministers agreed to undertake work needed to expedite the provision of existing flood mapping data for publication in the portal.”

Ministers also agreed that the national guidelines are needed and committed to co-operate in developing them.

“These measures will improve access to data and lead to a more consistent approach across the nation. The cost of this measure is around $12 million over the period 2012/13 to 2015/16.”

One-page Key Facts Sheet:

The Government will also implement a requirement for insurers to provide their customers with a “key facts sheet for all home and home contents policies. This will clearly set out on a single page all key information about the features of the policy, and complement the existing product disclosure statement.”

Further consultation on the content of the Key Facts Sheet will take place early next year. Prototypes of the Key Facts Sheet will also be subject to consumer testing prior to being finalised.

Reinsurance pool:

Mr Shorten says the review panel also made a series of recommendations in relation to the provision of affordable flood insurance to those at high risk of flood.

“This includes the creation of a reinsurance pool of funds that will enable insurers to provide discounted flood coverage to eligible high risk households.”

Lenders to remind borrowers:

The NDIR recommended – and the Government accepted – that lending institutions should remind borrowers annually of their obligation to maintain insurance and of the risks of underinsurance.

“The industry has accepted this in principle, and I will work with the industry over the coming months to develop a way to implement this recommendation,” Mr Shorten said.

Reforms to the General Insurance Code of Practice:

The review made a number of recommendations for changes to the General Insurance Code of Practice to improve insurers’ handling of claims and disputes relating to natural disasters.

The Government and insurance industry have already agreed to remove the provision that the code doesn’t apply during natural disasters and providing for time limits for the completion of expert reports such as hydrology reports.

“In the past, insurers didn’t have to abide by the code for claims relating to a natural disaster,” Mr Shorten said. “That will no longer be the case and will give the victims of natural disasters the same rights as general insurance consumers.”

Other recommendations:

Other measures recommended by the panel include a limit to the time taken by insurers to resolve claims and strengthened internal dispute resolution processes. The Government has started discussions with the industry about these changes.

The full list of recommendations and the Government’s responses, together with the consultation paper, can be downloaded from the Treasury website.