A Lismore resident whose home was severely damaged by floods in February will not have his claim paid after an Australian Financial Complaints Authority panel backed his insurer’s decision to decline it.

The homeowner lodged a claim after his property was overwhelmed by flood waters for several days after being initially hit on February 27.

IAG said the complainant’s policy did not cover the damage after he opted out of cover for flood, rainwater runoff and storm surge events in 2019 to reduce premium costs.

An insurer-appointed assessor, referred to as JC, reported that “brown water with mud” entered the home, leaving it with a “musky smell”.

JC said they had been no top-down damage but noted that the gable end of the property was damaged by the claimant while he was escaping the floods, which the insurer agreed to cover on an “ex-gratia basis”.

The homeowner said IAG failed to inform him of the policy alterations to the flood cover when he renewed his policy in 2019 with reduced premium costs.

IAG provided letters dated April 7 and 14, 2019, which AFCA said “clearly set out the changes to the policy”.

The insurer said it offered the man policy renewals, which included flood cover with premiums of $14,661.61 for home and $12,344.71 for contents. The certificate of insurance confirmed that premiums without the optional cover held significantly lower costs, amounting to $1,699.04 and $526.48, respectively.

The panel acknowledged the “stark” difference between the prices and said it was understandable that the homeowner chose the lower premium but agreed that the insurer was entitled to decline the claim.

"The panel accepts that a premium of close to $27,000 to include flood, rainwater runoff and storm surge cover of about $500,000 is unaffordable for most people," it said.

“While the complainant says the insurer amended the policies without his consent, the available information indicates the insurer clearly informed the complainant of the proposed changes.

“The policy is clear. It does not cover loss or damage caused by flood, rain water runoff or storm surge.

“In the circumstances it is fair the insurer can rely on the terms and conditions of the policy to decline the claim.”

AFCA considered IAG’s offer to pay the complainant for the damaged gable fair, with the insurer agreeing to reimburse the homeowner $5,360.756 based upon a quoted amount and additional compensation.

Click here for the ruling.