Insurers who responded to the Federal Government’s consultation on a standard flood definition have generally accepted the suggested wording. But some have called for storm water to be included.

The Treasury paper, “Reforming flood insurance – clearing the waters”, received 12 public and one confidential submission.

The Government’s proposed standard flood definition says:

“Flood means the covering of normally dry land by water that has escaped or been released from the normal confines of: (a) any lake, or any river, creek or other natural watercourse, whether or not altered or modified; or (b) any reservoir, canal, or dam.”

The Insurance Council of Australia (ICA) and insurers IAG and Suncorp suggest adding stormwater to point (b) so that man-made as well as natural channels are included. The insurers note it can be difficult to differentiate between the two.

A second proposal, that household insurance policies include a short “key facts” statement, drew industry concern that consumers would rely on that instead of reading their product disclosure statement, and that the relevant information could not be included on one page.

Insurers said they would need 18-24 months to implement a standard flood definition.

IAG warns in its submission that a standard definition does not mean that all policies will cover flood. 

“Insurers should retain the right to exclude flood insurance if they consider it does not fit within their risk appetite, particularly when the ability to provide this cover is dependent on external factors such as the availability of flood-risk data from local government authorities,” it said.

A submission from 12 consumer organisations, including legal groups, said they had found 18 different definitions of flooding in insurance policies following the Queensland events, and some policies had unfair or unusual definitions of storm or flash flooding. The groups found the proposed definition “reasonably clear”.

Suncorp supported a standard definition but noted it would not necessarily lead to a higher take-up of flood cover. It also says insurance is not a commodity product and different levels of cover are appropriate in a free and competitive market.

The National Insurance Brokers Association (NIBA) says a standard definition is preferable, but consumers’ understanding of “flood” is very broad.

“The risk is that if the standard definition of flood is less than that currently provided in the market, some insurers may seek to revert to the lesser cover,” NIBA said. “Commercially this is likely to be difficult where business is sold through insurance brokers. It is likely to be more of a risk for direct sales.” 

Although insurers recognise the usefulness of key facts statements, they have expressed concern that consumers would rely on it instead of reading their policy. IAG says it must be made clear that the statement is a summary only, and not a contract, and that it may not take into account individual circumstances.

“What is ‘key’ to a customer at claims time, in terms of cover and exclusions, depends on the facts and circumstances of individual claims,” it says.