Federal Treasury is considering creating more standardised definitions for natural hazards and reforming the standard cover regime.

The Albanese Government said in October 2022 it would investigate the issue, and today it released a consultation paper, asking for submissions by April 4.

The paper seeks feedback on natural hazard terms that should be standardised and potential reform options for the standard cover regime in the Insurance Contracts Act 1984. Currently, the only peril subject to a standard definition is flood.

“No one wants to be surprised at claims time,” Financial Services Minister Stephen Jones said. “That is why the Albanese Government is releasing a consultation paper on standardising natural hazard definitions and reviewing standard cover for insurance contracts.”

The Government says the push is part of a broader package of reforms “to improve insurance affordability and resilience to natural hazards”.

The Insurance Council of Australia (ICA) has welcomed the consultation, saying it aligns with insurer efforts to improve consumer outcomes.

“Standardised definitions would mean that all insurers use the same definition for a particular event in their insurance policies,” it said. “A standard definition for flood was legislated in 2012. The Treasury will now consider standardising definitions for three other natural hazards: fire, storm, and stormwater and rainwater run-off.

“Separately, ICA has commenced discussions with insurers about the possible adoption of standardised definitions for maintenance and wear and tear exclusions in policies.”

ICA says the standard cover regime “has declined in relevance because of subsequent legislative and policy design changes”. 

“We acknowledge there is more to be done to improve consumer understanding of policies, and standardised definitions for fire, storm, and stormwater and rainwater run-off may assist with this,” CEO Andrew Hall said.

Click here to read the discussion paper.