The Insurance Council of Australia (ICA) moved quickly to welcome the announcement of a parliamentary inquiry into insurers’ responses to last year’s devastating floods. 

“Any review that supports the ability of insurers to improve how they carry out their crucial function is welcome,” CEO Andrew Hall said. 

What he didn’t say is that the inquiry will only be valuable if it stays focused on facts and commercial realities. 

While Donald Trump has popularised the term “witch hunt” – meaning vilification and lies being used to destroy a reputation – this inquiry risks becoming just that for the insurance industry.  

For example, what will the industry’s reaction be if the inquiry concludes that greater government intervention in home insurance is needed? 

A press conference last week, held in the flood-ravaged NSW community of Eugowra, was not the most auspicious start.  

Local Independent MP Andrew Gee, who had successfully lobbied the Albanese Government to launch the inquiry, laid out a series of largely unsubstantiated accusations (a polite way of describing absolute rubbish) against insurers. 

According to Mr Gee, “mean-spirited” insurers have been unfairly denying claims and putting forward “ridiculous scenarios”, while hydrologists have been “colluding on water reports”. 

“They are saying to some business owners that they’ll only pay, for example, enough for rectification work for 20cm above the floor line… That’s how ridiculous some of these claims processing issues are.” 

Perhaps not so ridiculous if the insured didn’t have flood cover and only the first 20cm of damage was caused by stormwater. But Mr Gee didn’t go to that level of detail. In circumstances like this, critics of the insurance industry rarely do. 

Example: A resident says they’ve been with NRMA for 58 years “and they would not pay me”.  

“That night there was all this weather, a bit of the roof was damaged. They paid me $3000 to fix the roof but all the inside of the house, furniture, everything – everything was ruined; they refused to pay me. They’d pay for the top but not the bottom.” 

Also ridiculous, says Mr Gee. 

But is it really? If storm is covered in the policy and flood is not? Especially when NRMA Insurance bundles rainwater run-off in with flood. 

Flood cover in Eugowra is unaffordable for most, and the vast majority of the damage when disaster struck in November last year was caused by floodwater. It’s a desperately sad situation, but it’s reality.  

insuranceNEWS.com.au has been told that Mr Gee wants insurers to “just pay the claims”, even for flood damage where flood cover was not in place. 

If so, he’s heading for disappointment. Such payments would have to be made on an ex-gratia basis, and on such a large scale they would be unprecedented, not covered by reinsurance, infuriate insurance company shareholders, and concern regulators. 

Mr Gee has not responded to our requests for an interview.  

Many within the industry feel that despite ICA commissioning its own independent review into the floods, an official inquiry was inevitable. 

After all, the scale of the floods was unprecedented, with more than 240,000 claims from the NSW and Queensland catastrophe alone. They put insurers’ claims processes under remarkable strain. 

The plight of people who were permitted by local governments to build in flood-prone areas is very real, and this new inquiry will give them a chance to tell their stories. We can only hope the people appointed to run the inquiry keep it focused on the realities of the case.  

During last week’s press conference announcing the inquiry, federal Financial Services Minister Stephen Jones repeatedly tried to steer the conversation back to a more considered track. 

“We’ve also got to look at the underlying risk, and a big part of the Albanese Government’s approach to this issue is to ensure that we're not putting more houses and more communities in peril,” he said. 

“We want to ensure that at the very least we’re not building more houses and suburbs in floodplains. We want to ensure that at the very least when we are building things back, whether it's infrastructure or houses, that we’re building them back better and more resilient to the risks in the areas that they live in. 

“All of this needs to be done. If we only deal with one part of it, we'll be back here again, and tragically we'll be hearing the same story.” 

The inquiry’s terms of reference haven’t yet been revealed, but it would be unlikely that Mr Gee and others of a similar mind will play a leading role.  

Having left the Nationals late last year, Mr Gee could try to use the inquiry as a campaigning issue to help him beat his old party at the next election. The woes of insurance claimants tick all the boxes, but hopefully he will resist the temptation to use their plight for political ends. 

Some industry leaders fear it will, as one put it to insuranceNEWS.com.au, “turn into a great big witch hunt”.  

“It will not be pretty. It’ll go on for months. There will be a call for submissions, CEOs will be dragged in front of committees and there’ll be a reputational bloodbath.” 

Another concern is that the inquiry could become a first step on the road to greater government intervention in home insurance.  

Flood cover affordability remains a difficult problem to solve – it’s been a difficult problem for more than 40 years. While cover is now generally available, the price matches the risk. So in high-risk localities like towns and suburbs built on floodplains it’s generally unaffordable.  

While governments are now willing to increase investment in measures to reduce the risk, not every community can be protected by a levee, and not every town can be moved up a hill. 

So could the inquiry lead to other options like a flood reinsurance pool, direct subsidies, or highly regulated community-rated home insurance – where, as in health insurance, the price does not reflect the risk? 

It’s not where the general insurance industry wants to go, and hopefully politicians and regulators feel the same way. But with this inquiry the floodgates are being placed under greater strain, and nobody really knows where it’ll all wash up.