Insurers’ proposed industry flood definition is potentially unworkable and could lead to reduced cover for policyholders in flood-prone areas, according to brokers and regulators.

Early last month the Insurance Council of Australia (ICA) applied to the Australian Competition and Consumer Commission (ACCC) for a standardised flood policy wording.

But the National Insurance Brokers Association (NIBA) and the Australian Securities and Investments Commission (ASIC) have doubts.

In NIBA’s submission to the ACCC, CEO Noel Pettersen expresses concern the proposed wording is too broad, particularly in relation to storm surges.

“Authorising the definition of flood proposed by ICA is likely to see many insurance companies reduce their current coverage,” Mr Pettersen wrote.

He also says insurers who choose not to apply the definition should “clearly explain to policyholders in simple terms where their definition differs from the agreed common definition”.

ASIC also believes some insurers may use the proposed wording to define their exclusions, thereby restricting cover. “Where an insurer uses the common definition to exclude liability, and previously used a narrower definition, then this will result in a reduction of cover for the homeowner,” ASIC wrote in its submission.

And if they did offer broader coverage, it could also lead to a rise in premiums.

Insurers contacted by insuranceNEWS.com.au are yet to commit to the proposed wording.

ACCC Chairman Graeme Samuel indicated last July a flood definition would be unlikely to be knocked back.

ICA was unable to respond in time for this article.