Flood cover debate shows no sign of receding
As wide tracts of northern NSW and south-east Queensland lie underwater, residents must wait to learn if their insurer is prepared to pick up the tab – was it storm or was it flood that caused their property to be damaged or lost?
Early estimates from the Insurance Council of Australia (ICA) put insured losses at $39 million from 9500 claims received so far.
As insurers deliberate over the classification of storm or flood, affected customers will hope for the former. Only Zurich Financial Services Australia and Suncorp provide automatic flood cover to their customers.
It’s hard to believe that 10 years after the Wollongong floods cast dark shadows over the industry, flood cover in Australia remains an exception rather than the rule.
In the 1999 event in NSW, some insurers upheld their policy exclusions and refused to pay claims – a decision that was vilified by claimants and the local media. So much so that some insurers reversed their decisions and paid up. Of course, that only made things worse for those insurers which decided to hang on.
Fortunately for clients, enquiries by insuranceNEWS.com.au over the past week suggest that in most cases the floods in northern NSW and south-east Queensland have all the makings of a genuine storm event.
Among the insurers that don’t offer automatic flood cover, IAG is making all the right noises.
“Our main priority is helping our customers affected by the storms,” a spokesman told insuranceNEWS.com.au. “The NRMA Insurance and CGU teams are concentrating on getting customers the help they need by processing claims as quickly as possible and helping with immediate needs like critical repairs.”
But with the Macleay River on the mid-north Coast of NSW breaking its banks, genuine flood events remain a recurrent threat to property-owners, because home and contents policies do not typically cover riverine flood.
ICA’s attempts last year to move the issue forward foundered when the Australian Competition and Consumer Commission axed its proposed common industry flood definition. Since then, ICA has concentrated its efforts on developing a national flood database.
Suncorp hasn’t waited for the industry to play catch-up. It already has automatic flood cover among the personal lines of Suncorp and its subsidiaries, while Zurich had its commercial cover in place ahead of the ICA initiative.
GIO Executive Manager for Home Insurance Dennis O’Brien says 10 years of work around flood is proving its worth as the insurer reacts to the latest event.
“It’s been an absolute blessing,” he told insuranceNEWS.com.au. “It wasn’t good for us or our customers to be in a position of uncertainty. Now we’re not worried about the origins of the water unless it comes from the sea. If the rain has caused the flood, that’s what we cover.”
Suncorp’s stance means it no longer needs to employ hydrologists to determine causal factors in each and every region.
A case can be argued for others to adopt the policy, given Suncorp companies can hedge their increased exposure by collecting an additional flood premium distinct from storm provisions.
“We worked out that in the last 100 years 93% of all floods were insured under standard cover,” Mr O’Brien said. “Given that we’ve factored into the pricing the extra 7%, it hasn’t hurt us at all.”
While Suncorp and Zurich were the first insurers to offer flood cover to their respective personal and commercial lines portfolios, competitors haven’t exactly rushed to compete.
When Zurich launched its automatic cover in September last year, competitors claimed the policy put the giant Swiss-based company at risk of financial ruin in the event of a major disaster. Others simply dismissed the policy as window-dressing.
The occasional report has since surfaced claiming insurers have spread flood risk among low-risk customers living on the sides of hills while low-lying residents face monstrous premiums.
But Zurich CEO David Smith claims that’s not the case. He says Zurich’s policy is intended to be a meaningful development, and given his previous stint as CEO of IAG NZ he can’t see why his competitors haven’t moved into line with their NZ subsidiaries.
“I’m at a loss as to why they haven’t,” he told insuranceNEWS.com.au. “Most of our competitors have insurance operations in NZ that cover flood and I can’t see why they can’t offer it in Australia.”
Mr Smith says higher deductibles can help to avoid unacceptable hikes in premium. Rewriting flood as storm and paying claims on a one-off basis only confuses the public and sets a dangerous precedent, he argues.
“If you pay flood claims on an ex gratia basis, that precedent becomes difficult to manage,” he said. “Okay, your exposure might be small but what happens in a big event? You set yourself up for a PR disaster.”
When it comes to flood data, it appears there is no easy solution.
“In my view we’ll never get flood mapping 100% accurate, but we don’t need to,” Mr Smith said. “If we have a fair idea we can then rate it and price it. Some areas will be problematic. But let’s not try to delay things on that basis.”
For Mr O’Brien, the investment in flood cover is money well spent.
“Looking back on Wollongong and all those placards and protests in the street, it’s always been my vision to find a solution for those people,” he said. “We have to stop hurting our reputation as an industry.”
But it appears Suncorp and Zurich aren’t going to get the competitive swing they hoped for. So far the remaining insurers are sitting tight and making sure the flood exclusion is on every property-based policy they issue.
Until the industry can find greater consistency on the issue, the risk of inconsistent “flood or storm” decisions remains.
Early estimates from the Insurance Council of Australia (ICA) put insured losses at $39 million from 9500 claims received so far.
As insurers deliberate over the classification of storm or flood, affected customers will hope for the former. Only Zurich Financial Services Australia and Suncorp provide automatic flood cover to their customers.
It’s hard to believe that 10 years after the Wollongong floods cast dark shadows over the industry, flood cover in Australia remains an exception rather than the rule.
In the 1999 event in NSW, some insurers upheld their policy exclusions and refused to pay claims – a decision that was vilified by claimants and the local media. So much so that some insurers reversed their decisions and paid up. Of course, that only made things worse for those insurers which decided to hang on.
Fortunately for clients, enquiries by insuranceNEWS.com.au over the past week suggest that in most cases the floods in northern NSW and south-east Queensland have all the makings of a genuine storm event.
Among the insurers that don’t offer automatic flood cover, IAG is making all the right noises.
“Our main priority is helping our customers affected by the storms,” a spokesman told insuranceNEWS.com.au. “The NRMA Insurance and CGU teams are concentrating on getting customers the help they need by processing claims as quickly as possible and helping with immediate needs like critical repairs.”
But with the Macleay River on the mid-north Coast of NSW breaking its banks, genuine flood events remain a recurrent threat to property-owners, because home and contents policies do not typically cover riverine flood.
ICA’s attempts last year to move the issue forward foundered when the Australian Competition and Consumer Commission axed its proposed common industry flood definition. Since then, ICA has concentrated its efforts on developing a national flood database.
Suncorp hasn’t waited for the industry to play catch-up. It already has automatic flood cover among the personal lines of Suncorp and its subsidiaries, while Zurich had its commercial cover in place ahead of the ICA initiative.
GIO Executive Manager for Home Insurance Dennis O’Brien says 10 years of work around flood is proving its worth as the insurer reacts to the latest event.
“It’s been an absolute blessing,” he told insuranceNEWS.com.au. “It wasn’t good for us or our customers to be in a position of uncertainty. Now we’re not worried about the origins of the water unless it comes from the sea. If the rain has caused the flood, that’s what we cover.”
Suncorp’s stance means it no longer needs to employ hydrologists to determine causal factors in each and every region.
A case can be argued for others to adopt the policy, given Suncorp companies can hedge their increased exposure by collecting an additional flood premium distinct from storm provisions.
“We worked out that in the last 100 years 93% of all floods were insured under standard cover,” Mr O’Brien said. “Given that we’ve factored into the pricing the extra 7%, it hasn’t hurt us at all.”
While Suncorp and Zurich were the first insurers to offer flood cover to their respective personal and commercial lines portfolios, competitors haven’t exactly rushed to compete.
When Zurich launched its automatic cover in September last year, competitors claimed the policy put the giant Swiss-based company at risk of financial ruin in the event of a major disaster. Others simply dismissed the policy as window-dressing.
The occasional report has since surfaced claiming insurers have spread flood risk among low-risk customers living on the sides of hills while low-lying residents face monstrous premiums.
But Zurich CEO David Smith claims that’s not the case. He says Zurich’s policy is intended to be a meaningful development, and given his previous stint as CEO of IAG NZ he can’t see why his competitors haven’t moved into line with their NZ subsidiaries.
“I’m at a loss as to why they haven’t,” he told insuranceNEWS.com.au. “Most of our competitors have insurance operations in NZ that cover flood and I can’t see why they can’t offer it in Australia.”
Mr Smith says higher deductibles can help to avoid unacceptable hikes in premium. Rewriting flood as storm and paying claims on a one-off basis only confuses the public and sets a dangerous precedent, he argues.
“If you pay flood claims on an ex gratia basis, that precedent becomes difficult to manage,” he said. “Okay, your exposure might be small but what happens in a big event? You set yourself up for a PR disaster.”
When it comes to flood data, it appears there is no easy solution.
“In my view we’ll never get flood mapping 100% accurate, but we don’t need to,” Mr Smith said. “If we have a fair idea we can then rate it and price it. Some areas will be problematic. But let’s not try to delay things on that basis.”
For Mr O’Brien, the investment in flood cover is money well spent.
“Looking back on Wollongong and all those placards and protests in the street, it’s always been my vision to find a solution for those people,” he said. “We have to stop hurting our reputation as an industry.”
But it appears Suncorp and Zurich aren’t going to get the competitive swing they hoped for. So far the remaining insurers are sitting tight and making sure the flood exclusion is on every property-based policy they issue.
Until the industry can find greater consistency on the issue, the risk of inconsistent “flood or storm” decisions remains.