Standard policy wordings for all water damage causes and for wear and tear exclusions were urged today as the federal inquiry into the handling of 2022 flood claims visited Eugowra in NSW.

Independent MP Andrew Gee said the evidence presented “speaks to the random nature of these [insurance claim] determinations about what is floodwater”.

He cited evidence from Parkes Shire councillor Kenneth Keith that one resident’s insurer said if water was clear it was stormwater and if it was dirty it was floodwater.  

That would “almost be comical if it wasn’t so serious and disgraceful; you can’t make up the fact that this is what insurance companies have been doing”, Mr Gee said.

He said it “highlights the absurdity involved around this issue and the difficulty that policyholders have dealing with these insurance companies when you’ve got seemingly random determinations like that”. 

Committee chair Daniel Mulino said the question of whether to standardise policy terms for “all things ... water damage” and wear and tear definitions is under “active consideration” to reduce uncertainty for policyholders.

“This committee has heard a lot of evidence that it’s probably a sensible step,” he said.

Legal Aid NSW senior solicitor Ma'ata Solofoni said insurers “don’t necessarily explain what sort of maintenance would have assisted in preventing the damage ... so clients don’t really understand what they could have done.

“It depends on which person you get at the insurer as to what they understand in terms of maintenance and pre-existing conditions and looking at the proximate cause of damage.”  

Mr Gee said policyholders’ flood trauma was compounded by insurers’ treatment, and “I go as far as to say that it was mistreatment in certain cases”.

One resident told the inquiry she previously worked at IAG for more than a decade and had held insurance with NRMA for 36 years, but it “didn’t mean anything” when she tried to claim for water inundation. Most of the insurer’s staff were “young, have no idea and wouldn’t be able to spell the word Eugowra, let alone know where it is on a map”, she said.

A farmer said the industry needs to be decisive with storm definitions, because “with clever wording these insurance companies can wriggle their way out of almost any situation. They would not return our calls or answer emails. We were shocked at the lack of respect for having been loyal customers for nearly 40 years and paid hundreds of thousands of dollars to them. Everything is set up in the insurer’s favour.

“We understand that insurance companies need to make money, but we would ask them to understand that we are not just a policy number.”

The hearing also discussed claim delays caused by a shortage of hydrologists, and Mr Gee said their assessments were too often “just tick-a-box reports”.

“It made me think that we’re all in the wrong game and we should all be pumping out reports like that for $7000 a go, because they’re all basically the same, they don’t really take into account in a meaningful way the views of residents about where water comes from,” he said.

Mr Mulino said one proposal under consideration is creating a panel or other centralised way of procuring hydrologists, rather than “one hydrologist per house”.

This could be a more efficient use of resources and see reports “procured in a more neutral way rather than by one party in a dispute”.

The inquiry heads to Richmond tomorrow and Parramatta on Friday.