Flood definition raises even more questions
Last week’s AILA seminar in Melbourne titled The Flood Dilemma – Where are we going? could lead cynics to suggest the only direction at present is in circles.
Insurers and claims managers undoubtedly wish the definition of flood was less ambiguous. Homeowners with rejected claims might well reach the same conclusion.
ICA got the ball rolling in April when it put a standard definition before the ACCC. Now that it has been conditionally approved, one would expect the issue to be settling down. No such luck.
Judging by the mood of insurance lawyers at last week’s seminar, a definition that can enjoy widespread support is still some way off.
AILA does agree that a common flood definition is necessary, pointing out that the industry has played scapegoat for too long. The association says it is time some of the onus is put back on government bodies that have recklessly allowed people to build on low-lying areas or even over stormwater drains.
In that respect, ICA is given the credit for moving the issue forward with its standard flood definition. But the lawyers aren’t ecstatic about the way the council has gone about it.
To recap: The proposal which the ACCC has supported in principle defines inland flood as the inundation of water from a natural or manmade watercourse (such as a river, creek, canal or storm water channel) or water pool (such as a lake, pond or dam); water released from a dam; or water that cannot drain or run off due to water overflowing or escaping from an inland watercourse or water pool.
The definition has raised a few eyebrows. There is, for example, no explanation of what constitutes “inland”, and what exactly signifies a pond – a fishpond, for example? And, of course, coastal flooding – where many of the biggest risks lurk – isn’t even mentioned.
While the lawyers last week were reluctant to criticise the ICA effort outright, the sentiment was clear.
AILA President Chris Rodd (himself a claims expert working for a major insurer) can’t see the definition adding a lot when it comes to one common scenario for insurers – damage caused by a mixture of flood and storm water. This is not addressed in the ICA proposal.
As it stands, it’s still up to claims managers to decide whether storm or floodwater reached the property first, and the resultant contribution of each. That leads to inconsistency, and it is that inconsistency which attracts the controversy.
Another inconsistency the lawyers identified is the fact that while most personal lines policies exclude flood cover, insurers have often rebadged flood damage under storm provisions to facilitate payment.
The AILA seminar participants were last week given a case study in which a house had been inundated with floodwater, storm run-off and sewage.
One claims manager said he would pay the claim, another refused while a third said he would cover only damage to low-lying property.
Financial Ombudsman Service Insurance Division Panel Chairman Peter Hardham says he has never seen anything like ICA’s proposal. “It is going to be occupying the minds of more than one claims manager,” he said.
ICA hopes the common definition – the adoption of which will be voluntary for insurers – will mean flood insurance becomes more widely available.
But critics of the wording – including ASIC and NIBA – have argued it could just as easily be used by the insurers to restrict cover. For example, the definition extends flood terms further than is typically presently available on policies where flood is specifically covered.
The definition is primarily intended to act as a guide to consumers, so they will better understand what is and isn’t available in their policies. Without a standard definition – and until the industry gets over its habit of burying the definition deep in product disclosure statements – customers can’t be blamed for their lack of awareness or understanding.
Mr Hardham says he and a colleague sometimes race to see who can find the flood exclusion in a new policy first – and the game can take up to half an hour.
So it’s not just about the standard definition, although it’s a bit early to know how – or if – it will be embraced by insurers. And even then its ability to make anything clearer to consumers is debatable.
What is clear is that there’s still a long way to go to sort out the whole flood insurance issue.
Insurers and claims managers undoubtedly wish the definition of flood was less ambiguous. Homeowners with rejected claims might well reach the same conclusion.
ICA got the ball rolling in April when it put a standard definition before the ACCC. Now that it has been conditionally approved, one would expect the issue to be settling down. No such luck.
Judging by the mood of insurance lawyers at last week’s seminar, a definition that can enjoy widespread support is still some way off.
AILA does agree that a common flood definition is necessary, pointing out that the industry has played scapegoat for too long. The association says it is time some of the onus is put back on government bodies that have recklessly allowed people to build on low-lying areas or even over stormwater drains.
In that respect, ICA is given the credit for moving the issue forward with its standard flood definition. But the lawyers aren’t ecstatic about the way the council has gone about it.
To recap: The proposal which the ACCC has supported in principle defines inland flood as the inundation of water from a natural or manmade watercourse (such as a river, creek, canal or storm water channel) or water pool (such as a lake, pond or dam); water released from a dam; or water that cannot drain or run off due to water overflowing or escaping from an inland watercourse or water pool.
The definition has raised a few eyebrows. There is, for example, no explanation of what constitutes “inland”, and what exactly signifies a pond – a fishpond, for example? And, of course, coastal flooding – where many of the biggest risks lurk – isn’t even mentioned.
While the lawyers last week were reluctant to criticise the ICA effort outright, the sentiment was clear.
AILA President Chris Rodd (himself a claims expert working for a major insurer) can’t see the definition adding a lot when it comes to one common scenario for insurers – damage caused by a mixture of flood and storm water. This is not addressed in the ICA proposal.
As it stands, it’s still up to claims managers to decide whether storm or floodwater reached the property first, and the resultant contribution of each. That leads to inconsistency, and it is that inconsistency which attracts the controversy.
Another inconsistency the lawyers identified is the fact that while most personal lines policies exclude flood cover, insurers have often rebadged flood damage under storm provisions to facilitate payment.
The AILA seminar participants were last week given a case study in which a house had been inundated with floodwater, storm run-off and sewage.
One claims manager said he would pay the claim, another refused while a third said he would cover only damage to low-lying property.
Financial Ombudsman Service Insurance Division Panel Chairman Peter Hardham says he has never seen anything like ICA’s proposal. “It is going to be occupying the minds of more than one claims manager,” he said.
ICA hopes the common definition – the adoption of which will be voluntary for insurers – will mean flood insurance becomes more widely available.
But critics of the wording – including ASIC and NIBA – have argued it could just as easily be used by the insurers to restrict cover. For example, the definition extends flood terms further than is typically presently available on policies where flood is specifically covered.
The definition is primarily intended to act as a guide to consumers, so they will better understand what is and isn’t available in their policies. Without a standard definition – and until the industry gets over its habit of burying the definition deep in product disclosure statements – customers can’t be blamed for their lack of awareness or understanding.
Mr Hardham says he and a colleague sometimes race to see who can find the flood exclusion in a new policy first – and the game can take up to half an hour.
So it’s not just about the standard definition, although it’s a bit early to know how – or if – it will be embraced by insurers. And even then its ability to make anything clearer to consumers is debatable.
What is clear is that there’s still a long way to go to sort out the whole flood insurance issue.