The Australian Financial Complaints Authority (AFCA) has backed proposals to introduce more standard definitions for natural disasters, arguing it will help consumers compare products and cut complaints.

As insuranceNEWS.com.au has reported, the Federal Government is consulting on standardising natural hazard definitions and reviewing the standard cover regime.

Currently, only flood has a standard definition, but Treasury’s consultation paper suggests also standardising fire, storm, and stormwater and rainwater run-off.

“We support these proposals,” AFCA’s submission says. “Based on our complaint resolution experience, we believe standardisation of those definitions could provide important benefits.”

It says the advantages include: making it easier for consumers to compare policies; simplifying disclosure and claims handling; reducing the number of complaints made to insurers and AFCA; and reducing the complexity of complaint resolution.

The submission says water hazards should be given priority but other terms should then follow.

“We understand standardisation of definitions is a complex undertaking. Standardising three definitions as proposed in the consultation paper would be a good starting point.

“However, ongoing work to continue standardisation is needed. If some definitions are standardised and others are not, problems in understanding, comparability and underinsurance may continue.”

AFCA says consumers’ lack of understanding around exclusions is often what leads to disputes. “In complaints that reach AFCA, the issue is often whether circumstances fall within an exclusion, rather than whether they fall within a definition.”

On standard cover, it says the current regime provides “an important benchmark”, requiring insurers to disclose where cover differs. 

“We do not agree with the claim that repeal would have little to no impact on consumers or insurers,” the submission says. “AFCA does not support repeal of the standard cover regime absent the introduction of an alternative, more effective measure.”

Click here to read the submission in full.

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