NRMA Insurance home cover changes risk increasing confusion over flooding and rainfall inundation and adding to problems for customers choosing between policies, a consumer group says.

The IAG-owned insurer last year said it would cover rainwater run-off and storm as separate events, and also automatically include flood and storm surge in policies.

Under the changes, rainwater run-off, flood and storm surge are grouped together, so if consumers opt out of flood cover, they are removed from all three areas.

The changes reduce the need for hydrologists to assess the source of inundation, which has been a cause of friction following catastrophes, but have other consequences.

The Financial Rights Legal Centre says consumers living far from a watercourse, who opt out of flood cover, would be affected if their homes are inundated by runoff following torrential rain, while it also makes it more difficult to compare policies.

“This is the reason there needs to be standard cover and standard definitions,” Policy and Advocacy Officer Drew MacRae tells insuranceNEWs.com.au. “It is this sort of PDS game-playing that just causes consumers to be incredibly cynical.”

The changes are explained in the key fact sheets and product disclosure statements and an NRMA Insurance spokesman says the business has written to customers ahead of renewal notices to explain the changes and risks so they can make informed decisions.

“Our experience and our concern is that in the past customers have chosen not to have flood cover before understanding the level of risk at their property,” he said.

“However we also understand customers may not want flood cover due to the cost, particularly if they’re are in a high-risk area, so our changes aim to strike the right balance.”

The wording applies to home building and contents, landlord, strata title and on-site caravan policies in NSW, ACT and Tasmania. Flood cover will remain mandatory for NRMA Insurance Queensland policies.

“This clarity will also benefit customers by ensuring we can process their claim as quickly as possible without having to wait for an independent hydrologist to assess whether their property was damaged by rainwater run-off or flood,” the spokesman said.

The NRMA policy makes no change to the standard definition of flood, which was introduced in the wake of 2010-11 catastrophes to provide consistency across the industry. The cover is compulsory in some policies and offered on an opt-out basis in others.

“That causes its own problems, in the sense that there have been some real issues around pricing and people are getting priced out of the market, but the fact that they are playing around with other water-related definitions complicates decision making.” Mr MacRae said,

LMI Group MD Allan Manning says traditionally storm and tempest and rainwater were considered separate perils, but they are typically automatically included in policies.

The NRMA approach risks removing a valuable cover as denser urban environments increase run-off, particularly in cases where consumers switching from another provider may not notice the policy difference, he says.

“I think it needs to be in 10-foot letters,” he said. “We have all these hard surfaces so there is more water on the surface than ever before and customers need that cover.”

RACV Insurance also groups rainwater runoff, flood and storm surge together in the same way. The cover is provided through the Insurance Manufacturers of Australia venture, 70% owned by IAG and 30% by RACV.