A Victorian council chief has highlighted the limitations of business interruption insurance at the Royal Commission into National Natural Disaster Arrangements.

Indigo Shire Council CEO Trevor Ierino told the hearing that the area – which relies heavily on tourism – was not directly hit by last season’s devastating fires, but was badly affected by smoke and evacuation warnings.

“The State provided instructions for all the tourists and visitors to leave the area,” he said.

“The immediate aftermath was basically a desertion of our towns … all tourists leaving.

“Then afterwards that period lingered on for some four to six weeks. [There was] heavy, heavy smoke impact, periods of poor air quality or hazardous air quality for some long periods of time.

“By the time there was any sense of the air clearing and, you know, it was safe to return to the region, then that season was lost. The kids were back to school.”

Mr Ierino says the usual 160,000 visitors to the area at that time of year fell to 40,000, with spending dropping from $46 million to $14 million.

But he says businesses have been unable to access business interruption payments under their insurance policies.

He says that claims were not possible because there were no physical roadblocks and “we weren’t in the right postcode to be declared eligible for insurance”.

As previously reported by insuranceNEWS.com.au, the Australian Financial Complaints Authority (AFCA) ruled against a claimant suffering similar circumstances.

The small business lost more than $150,000 in profit when thick smoke from bushfires on SA’s Kangaroo Island deterred tourists in January, but lost its dispute over a business interruption claim.

AFCA agreed the nearby fires had a significant impact on the business but said the Suncorp policy clearly defined that loss or damage must be of a physical nature.