An NSW manufacturing business that had its optional flood cover cancelled has lost its challenge to reinstate it after a dispute ruling found the insurer’s decision was fair. 

Disputes arose after QBE informed the business owner that it would decline to offer the flood cover on August 12 last year, about a month before the business insurance policy had been up for renewal.

The insured, who held policies with QBE for about 20 years, purchased the flood cover policy in 2014 for the business, which is near a river. 

The property had twice been flooded, in December 2020 and March last year, and the insurer accepted two claims assessed at a combined cost of $101,000.

After the insured complained about last year's withdrawal of flood cover, QBE agreed to a three-month extension. The insurer says this decision was made to provide the complainant time to find an alternative insurance option. 

The insured argued that QBE’s decision to withdraw flood cover had been “indiscriminate and malicious in nature,” saying it did not consider risk management strategies implemented. The insured had introduced methods to raise plants, equipment and machines in the event of flooding. 

They also say the insurer “overestimated” the risk of flood damage to the business and that the risk was lower compared to previous years when the cover had been offered.

QBE says the decision was made in line with its underwriting rules, which considered the complainant’s previous claims, historical data of flooding in the region and assessment that the location of the business had been “flood-prone”.

The insurer’s underwriter, referred to as DT, notes the mitigation tactics implemented by the insured had been ineffective during the previous floods that resulted in claims. 

DT says the underwriting guidelines’ primary consideration relates to the likelihood of future damage, which the insurer estimated was “a near certainty” despite the added mitigation strategies. 

The Australian Financial Complaints Authority (AFCA) said QBE’s decision was based on “sufficient, relevant and factually correct information” and was a fair application of its underwriting rules. 

AFCA says it cannot compel an insurer to offer coverage and instead considers whether its decision-making process for policy refusal was fairly determined. 

“The insurer’s decision to refuse to offer flood cover was not indiscriminate, malicious or erroneous,” AFCA said.

“Consequently, the insurer is not required to offer ongoing flood cover.

“In this regard, in determining the type of insurance it wishes to offer, the insurer has complied with its duties and obligations pursuant to the applicable rules and legislation.”

The ruling also accepts that QBE provided “adequate and reasonable notice” on the timeframe of its decision but is critical of its contact method through the complainant’s broker's electronic portal. 

“Although the method of contact was not ideal, I note the complainant’s representative was able to access the notice provided by the insurer within the 14-day period required by section 58(2) of [The Insurance Contracts Act 1984 (cth)],” AFCA said.

“Moreover, the provision of the three-month extension of flood cover by the insurer provided the complainant with additional time in which to further negotiate with the insurer and/or secure alternate insurance.”

AFCA says insurers' underwriting profitability assessments for commercial insurance are generally "a subjective process", and the Australian Prudential Regulation Authority (APRA) requires general insurers to have risk management systems which meet prudential obligations.

“So long as general insurers act pursuant to those risk management systems (and their underwriting rules), they are entitled to determine and evaluate the risks they are willing to insure against,” AFCA said. 

“In that sense, a customer’s need for a particular type of cover is but one consideration taken into account, and not necessarily the definitive consideration.”

Click here for the ruling.