A cold realisation is seeping out of north Queensland as Townsville begins its recovery from its unprecedented floods – most inundated businesses did not insure for flood and could be facing ruin as a result.

Politicians have, of course, wasted no time deciding who’s to blame.

Townsville Mayor Jenny Hill says she is hearing horror stories of insurance customers being “dudded”.

“I’ve already heard too many stories about dodgy insurance practices – particularly relating to small business claims,” Cr Hill said.

“Small business owners and residents buy insurance in good faith and then appear to be being ripped off by the fine print of the contract. It’s simply not good enough.”

Deputy Mayor Les Walker has joined the fray, saying it is “appalling” that some insurers are “trying to wriggle out of their responsibilities on a technicality”.

And the comments keep on coming, from both sides of the political divide.

“Insurers must not use loopholes to deny payment of insurance claims,” Deputy Premier Jackie Trad tweeted.

Queensland Opposition Leader Deb Frecklington said: “Insurance companies must ditch these tricky tactics and pay out on their policies.”

None of this is new. It’s almost routine for politicians to lash out at insurers even as millions of insurance dollars start pouring into a devastated area. But if you’re not adequately insured you’re going to be disappointed, and there are always politicians ready and willing to race to their side, randomly shooting from the lip.

The Insurance Council of Australia (ICA) can do little else than state calmly that insurers will deal with claimants “swiftly, fairly and compassionately”, and that the response to the Townsville catastrophe is the fastest on record.

Townsville businesses have everybody’s sympathy, but the stark fact remains: if they didn’t buy flood cover they can’t expect insurance payouts for flood damage. And the difference between storm damage and flood damage should no longer confuse anybody.

LMI Group CEO Allan Manning, who has prepared a white paper on the issue, says people cannot assert they didn’t know they weren’t covered.

“I cannot accept for a minute that the majority of people did not realise they were not insured for flood,” he says. “The whole issue has received national coverage many times in the past, particularly following the 2010-11 Queensland floods.

“You would have had to live under a rock or have taken an ‘it will never happen to me’ attitude to not have been prompted to look at this issue when taking out or renewing insurance.”

It’s still unclear why so many are not covered, but theories are coming thick and fast.

Was it too expensive? Did people look at flood maps and believe they were not in danger? Did brokers fail to explain the risks?

One anecdote suggests that adding flood cover doubled the premium for a Townsville business, which if true may well explain why some opted out and were then caught out by a year’s rainfall in a few days, topped off by the opening of the Ross River Dam.

ICA says flood cover has been available to Townsville businesses since 2007.

Most commercial policies do not include flood as standard cover, and there is no guarantee insurers would take on the additional risk if requested to do so.

“The product disclosure statement lists flood as an exclusion in their standard product,” Danny Dworjanyn, from Townsville-based Method Insurance Brokers, told insuranceNEWS.com.au.

“The insurer can consider removing the flood exclusion when requested. However, flood is not always accepted and the additional premium to add flood varies in each case.”

Senior brokers spoken to by insuranceNEWS.com.au today say brokers would still be expected to discuss the option of flood cover with their clients, so the decision to go without cover would ultimately be an informed one.

So what now?

It was all smiles after Friday’s meeting between insurance industry representatives and Townsville politicians, but the industry will no doubt come under increasing pressure to pay claims for risks it didn’t accept.

But can it, and should it, pay out if the policy does not respond?

It has happened before, in the bad old days before the industry was forced by then-financial services minister and now Opposition Leader Bill Shorten to devise a universal definition of flood following the 2011 Brisbane floods.

The industry should resist ex gratia payments for people who deliberately chose not to be insured against flood. If they can prove their broker didn’t mention the flood option to them, they may – perhaps – have a claim against the broker, but not the insurer.

Should flood cover be compulsory? No, say industry leaders, because it would lead to increasing numbers of businesses abandoning insurance altogether.

Better land use planning, increased mitigation and the removal of insurance taxes are most likely to reduce the impact of future disasters and make insurance more affordable.

These are not the responsibilities of the insurance industry, but of government.

Perhaps it’s time for the mainstream media to stop giving state politicians such an easy ride in criticising insurers. We haven’t yet heard any journalist question Ms Trad or Ms Frecklington about premium affordability, and the part played in that equation by a 9% state stamp duty that is calculated on top of the GST component.

As for Deputy Mayor Walker, insuranceNEWS.com.au asked him via email to explain exactly what issues small businesses in Townsville are having with insurers.

We asked him whether declining a flood claim when flood cover is not in place can fairly be described as being “ripped off by the fine print”, or “wriggling out on a technicality”.

And we asked whether politicians use insurers as scapegoats when the real responsibility for reducing the impact of natural disasters lies with them.

Cr Walker received our email on Friday, and we’re still waiting for a response.