Consumer law groups say the Insurance Council of Australia’s failed bid to introduce a common flood definition shows it needs to “enter the 21st century” by properly engaging with the community.

The Australian Competition and Consumer Commission last week rejected authorisation of ICA’s common flood definition proposal after consumer law groups “strongly urged” the regulator to spike the proposal.

The submission declared the proposal could cause “significant public detriment”.

It was an interesting revelation. One had to wonder why consumer lawyers would unite to bury a proposal that, in the words of ICA CEO Kerrie Kelly, had the potential to improve access to flood cover in Australia. 

Consumer advocates are notoriously thin-skinned, but after long years in the political wilderness of the pro-business Howard Government they are back as a serious political force. ICA has always maintained contact with consumer advocates through its Consumer Consultative Committee, and has generally benefitted from the contact. The advocates gain greater understanding of the industry’s issues and the council gets to communicate its ambitions in a non-confrontational (and private) forum.

There’s general agreement that ACCC’s rejection came after the consumer advocates got a chance to examine the ICA proposal. So what went wrong in the backroom consultative process?

Consumer Action Law Centre Director of Policy and Campaigns Nicole Rich told insuranceNEWS.com.au the ICA proposal was “seriously flawed, for a number of reasons”.

She drafted the submission to the ACCC on behalf of the Consumer Action Law Centre, the Consumers’ Federation of Australia, the Insurance Law Service, Legal Aid NSW, Legal Aid Queensland and West Heidelberg Community Legal Service in Victoria.

Ms Rich acknowledges the community would benefit from a common industry flood definition, but says the ICA definition “was very broad and included a range of phrases and concepts that were new to the area and created uncertainty from a legal viewpoint”.

Her submission declared the proposal was “fatally undermined” by its voluntary aspect, and claimed most insurers would use the proposal to exclude flood cover – a concern also voiced by ASIC and the National Insurance Brokers Association.

Ms Rich points to the Insurance Contracts Act and the Insurance Contracts Regulations to back up that claim.

In her submission she notes legislation “provides that, for prescribed types of insurance contracts, the insurance contract must cover prescribed events, unless the insurer clearly informs the insured in writing”. Her concern is that the ICA definition would therefore provide a template to exclude cover.

The submission certainly did the trick. The ACCC noted the lawyers’ arguments in its decision to axe the ICA proposal. It said the submission “argued that ICA’s definition would in fact increase consumer confusion about the meaning and nature of flood cover rather than improve consumer understanding”.

Not surprisingly, ICA disagrees with the consumer groups’ view. Last month Ms Kelly told a Melbourne industry audience the definition was an industry benchmark that would improve rather than restrict access to flood cover.

Shortly after the ACCC announced its rejection, ICA GM Communications Paul Giles weighed in, describing the “11th hour” submission by the consumer groups as “very disappointing, given their opportunity to discuss the development of the definition in this forum in a constructive and timely manner with the general insurance industry”.

But Ms Rich says that claim is “nonsense”.

She says ICA failed to properly consult on the proposal even to consumer delegates of its own consultative committee.

“The claim that we deliberately acted at the last minute is not only nonsense but it is disingenuous at best and misleading at worst,” she said.

“We had no opportunity to engage with the proposal. One of the [consultative] committee members actually asked ICA about their flood initiative and was told to ‘wait for the ACCC’.”

Ms Rich says many consumer advocates only learned the details of the ICA proposal when the ACCC published the draft definition in July. She says they acted immediately.

West Heidelberg Special Projects Lawyer Denis Nelthorpe – who has been engaged in flood insurance-related issues for many years – is similarly critical.

“Broadly speaking, over a long period of time ICA’s approach [has been] to announce a fait accompli and hope that you will be grateful for the information,” he told insuranceNEWS.com.au.

But the advocates aren’t celebrating the demise of the ICA definition. Ms Rich says she’s disappointed at the council’s announcement a few hours after the ACCC decision was made public that it has “no plans to immediately revisit the proposal”.

“I think that reflects the ICA’s inability to run a decent communications campaign,” she said. “They’d rather walk away than consult with the community.

We’d welcome consultation with ICA on a more appropriate and fair proposal.”

Ms Rich told insuranceNEWS.com.au she believes an adequate common flood definition does have the potential to deliver benefits to the community. But she acknowledges that – taking into account ICA’s standpoint – an attempt to develop a supportable solution now seems unlikely.