NRMA Insurance has rejected criticism of a home cover policy change that groups flood, rainwater run-off and storm surge.

It says that rather than possibly creating confusion, the change provides advantages for consumers.

The policy change automatically covers consumers for the three groundwater impacts, which means a customer cannot opt out of flood without also removing cover for the other two.

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

A spokesman for IAG-owned NRMA Insurance told insuranceNEWS.com.au “the vast majority of [our] customers are deemed to not be at risk of flood, storm surge or rainwater run-off and are therefore now fully covered for these impacts for no additional premium”.

“Those customers deemed to be at risk for any of flood, storm surge or rainwater run-off, where the premium is less than a defined affordability threshold based on extensive customer research, will automatically have this cover included for all three risks.”

The insurer says customers deemed at high risk and above the affordability threshold are automatically opted in so they can understand the level of risk at their property. They are contacted to have the risk explained, so they can make an informed decision about whether to omit cover.

The associated key facts sheet says NRMA Insurance covers storm and rainwater run-off as separate events, reflecting the difference between storm damage and rainwater run-off across the ground.

The changes reduce the need for hydrologists to assess the source of inundation, which has been a cause of friction and delays following catastrophes.

But the Financial Rights Legal Centre says consumers living far from a watercourse who opt out of flood cover would be affected if their homes were inundated by run-off following torrential rain. The centre says the change 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 told insuranceNEWS.com.au. “It is this sort of product disclosure statement game-playing that just causes consumers to be incredibly cynical.”

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.

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

He says the NRMA Insurance 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.