The Insurance Council of Australia’s (ICA) common definition of inland flood has been rejected by the competition regulator.

The Australian Competition and Consumer Commission (ACCC) announced last night that ICA’s application made in March for approval of an agreement allowing insurers to voluntarily adopt a common definition of inland flood has been denied because it’s unlikely to deliver benefits to the public that would balance out any possible anti-competitive features.

“The ACCC supports efforts to establish a common definition of flood that is widely understood by consumers and can be used as a benchmark for flood cover in insurance policies,” Chairman Graeme Samuel said. “However, the definition proposed by ICA is unlikely to achieve this aim.”

In July the commission gave the proposal draft approval if conditions were imposed that would provide “greater certainty that the definition would assist consumers in understanding flood insurance and would result in improvements in the consistency of contractual terms dealing with flood insurance”.

Last month ICA CEO Kerrie Kelly defended the definition, saying it was intended to improve rather than restrict access to flood cover and describing it as “a starting point for consumers to compare policies”.

But Mr Samuel said today groups which have represented consumers in disputes about flood cover had raised concerns about the terminology chosen by ICA.
 
“These consumer groups argued that ICA’s definition would in fact increase consumer confusion about the meaning and nature of flood cover rather than improving consumer understanding,” he said.

“The ACCC is particularly concerned that the ICA definition of flood introduced a range of new concepts, the legal implications of which are not clearly understood.”

Concerns were also raised by the Australian Securities and Investments Commission and the National Insurance Brokers Association.

Mr Samuel says the commission recognises the issue is complex and has encouraged ICA to work with consumer groups and other interested stakeholders to revise the proposal. He says the ACCC wants a definition “that will make it easier for consumers to understand what the term flood means and the extent to which their individual insurance policy covers them for flood damage”.

ICA General Manager Communications Paul Giles told insuranceNEWS.com.au the ACCC decision leaves consumers without a benchmark definition to compare different insurance flood products.

"Consumers are still left to make choices based upon their own understanding of the complex nature of flood."

He suggested "eleventh hour" submissions by consumer groups had buried the proposal, and described those actions 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."

Mr Giles said the definition provided to the ACCC was developed after extensive consultations over a long period of time with consumer groups, including through the ICA Consumer Consultative Committee.

"No further work will be undertaken on the standard definition at this time," he said.