The Australian Consumers Insurance Lobby (ACIL) says a focus on “overarching principles rather than intricate definitions” is important for policy clarity, as a Treasury consultation considers standardising more natural hazard terms.

The group supports standardisation of terms and definitions to eliminate ambiguity and give consistency, but says it is essential policies are “not merely about the words used but about the protection they are intended to offer”.

Treasury last month released a consultation paper on whether terms in addition to flood should have standard definitions. It is also considering standard cover regime changes.

The Insurance Council of Australia, the National Insurance Brokers Association and consumer organisations are among groups to have lodged submissions.

ACIL’s submission says disputes often arise from term interpretations rather than definitions and the main challenge lies in how insurers communicate coverage scope, including benefits and exclusions.

Some exclusions rely on opinion, raising doubts about their validity, and issues around wear and tear and gradual deterioration, defective work, pre-existing damage and leaks should be addressed, it says.

“The standardised terms should inherently encompass what consumers reasonably anticipate being covered, thereby reducing the reliance on numerous exclusions and fostering a more transparent and consumer-friendly insurance environment,” it says.

ACIL suggests insurers should provide fact sheets with information on commonly declined claims and disputed issues based on policy cover, to enhance transparency.

Given they understand rebuild costs better than consumers, insurers should also be proactive in ensuring policyholders have sufficient cover, or alternatively adopt complete replacement policies rather than relying on a sum insured, the submission says.