Insurers pin their hopes on a flood definition
The industry’s latest attempt to bring some clarity to the difficult issue of universal flood insurance has gained plenty of attention, much of it for the wrong reason. Most comment has centred around the Australian Competition and Consumer Commission’s almost hostile draft ruling on the common flood definition.
The draft indicates the commission’s intention to allow insurers to use a common definition of inland flood, but the raft of data collection and control measures tipped on top will have them wondering exactly what kind of future public relations trap they might be walking into.
ICA will be required to conduct consumer education campaigns and submit reports on these activities every two years. It will have to record the number of members that adopt the definition, and how many policies are sold that contain the wording.
Insurers will also need to clearly disclose the definition to clients, and will not be permitted to alter the wording.
The definition covers inland flood caused by the release of water from a watercourse, waterpool or dam; coastal flooding isn’t mentioned. It’s intended to increase consumer understanding about what their insurance policies actually cover.
The commission had to accept that insurers are keen to remove the embarrassment of individual companies defining flood in their own different and often charmingly idiosyncratic ways. The definition is therefore a sign of realistic progress, even if it is more an educational tool than a major step on the way to the (probably unachievable) ideal of universal flood cover.
As ACCC Chairman Graeme Samuel noted, while the definition might help consumers understand they’re not covered for flood, it won’t actually expand the availability of flood insurance. And that remains the key issue.
“The proposal does not seek to address consumer concerns about the availability, adequacy and extent of flood cover,” he said.
Nevertheless, insurers deserve some acknowledgement of their efforts to move the issue forward. But the ACCC had to take the cautionary comments of ASIC and NIBA – who are worried that the definition might restrict flood insurance more than it already is – into account.
The draft ruling suggests a low level of trust in the willingness of insurers to do the right thing by consumers. ICA fell seriously offside with the commission when the issue last came into public focus 12 months ago, following the NSW Central Coast storms.
At that time a council spokesman blamed the ACCC for inaction over a common flood definition. The commission’s Chairman, Graeme Samuel, tersely noted the ACCC had responded three times since 2006 to ICA queries on the issue.
“The ACCC has made it clear to the ICA that development of a standard definition for flood would be unlikely to raise concerns in itself where insurers were otherwise able to continue to offer different levels of coverage,” he said.
“Having pondered this important issue for a number of years, the insurance industry has itself to blame for delays in progress.”
Ouch. Well, now they have their definition, it will be up to the insurers to use it. The conditions demanding data on the level of industry uptake will be revealing.
The ACCC noted in the draft document that major flooding events in Australia have raised strong community concerns about the availability of cover for flood damage.
It’s a problem that has been around for many years, and one the insurers have long acknowledged – without publicly doing all that much about it. In May ICA President John Mulcahy told a climate change conference that many consumers assume home and contents covers all types of flood damage even when the product disclosure statement says otherwise.
“Where there is clearer understanding of storm and flood definitions, consumers can better appreciate the nature and extent of their insurance,” he said.
ICA members are currently considering the draft ruling and have until July 24 to respond. A final ACCC decision is expected by early September.
For ICA, it’s important to gain solid industry support for the definition. If the response is weak, it will have nowhere to hide, because the data it will have to supply to the ACCC will make any failure abundantly clear.
In that circumstance consumer advocates will have every right to question the industry’s sincerity. This is one small step in a very long campaign.
The draft indicates the commission’s intention to allow insurers to use a common definition of inland flood, but the raft of data collection and control measures tipped on top will have them wondering exactly what kind of future public relations trap they might be walking into.
ICA will be required to conduct consumer education campaigns and submit reports on these activities every two years. It will have to record the number of members that adopt the definition, and how many policies are sold that contain the wording.
Insurers will also need to clearly disclose the definition to clients, and will not be permitted to alter the wording.
The definition covers inland flood caused by the release of water from a watercourse, waterpool or dam; coastal flooding isn’t mentioned. It’s intended to increase consumer understanding about what their insurance policies actually cover.
The commission had to accept that insurers are keen to remove the embarrassment of individual companies defining flood in their own different and often charmingly idiosyncratic ways. The definition is therefore a sign of realistic progress, even if it is more an educational tool than a major step on the way to the (probably unachievable) ideal of universal flood cover.
As ACCC Chairman Graeme Samuel noted, while the definition might help consumers understand they’re not covered for flood, it won’t actually expand the availability of flood insurance. And that remains the key issue.
“The proposal does not seek to address consumer concerns about the availability, adequacy and extent of flood cover,” he said.
Nevertheless, insurers deserve some acknowledgement of their efforts to move the issue forward. But the ACCC had to take the cautionary comments of ASIC and NIBA – who are worried that the definition might restrict flood insurance more than it already is – into account.
The draft ruling suggests a low level of trust in the willingness of insurers to do the right thing by consumers. ICA fell seriously offside with the commission when the issue last came into public focus 12 months ago, following the NSW Central Coast storms.
At that time a council spokesman blamed the ACCC for inaction over a common flood definition. The commission’s Chairman, Graeme Samuel, tersely noted the ACCC had responded three times since 2006 to ICA queries on the issue.
“The ACCC has made it clear to the ICA that development of a standard definition for flood would be unlikely to raise concerns in itself where insurers were otherwise able to continue to offer different levels of coverage,” he said.
“Having pondered this important issue for a number of years, the insurance industry has itself to blame for delays in progress.”
Ouch. Well, now they have their definition, it will be up to the insurers to use it. The conditions demanding data on the level of industry uptake will be revealing.
The ACCC noted in the draft document that major flooding events in Australia have raised strong community concerns about the availability of cover for flood damage.
It’s a problem that has been around for many years, and one the insurers have long acknowledged – without publicly doing all that much about it. In May ICA President John Mulcahy told a climate change conference that many consumers assume home and contents covers all types of flood damage even when the product disclosure statement says otherwise.
“Where there is clearer understanding of storm and flood definitions, consumers can better appreciate the nature and extent of their insurance,” he said.
ICA members are currently considering the draft ruling and have until July 24 to respond. A final ACCC decision is expected by early September.
For ICA, it’s important to gain solid industry support for the definition. If the response is weak, it will have nowhere to hide, because the data it will have to supply to the ACCC will make any failure abundantly clear.
In that circumstance consumer advocates will have every right to question the industry’s sincerity. This is one small step in a very long campaign.