Residents of bushfire-devastated Wye River and Separation Creek have been retrospectively rendered underinsured following the Victorian Government’s decision to upgrade the towns’ bushfire attack level (BAL) to the highest level.

The new BAL-FZ (flame zone) extreme risk rating means new houses must be built to tougher – and more expensive – bushfire-resistant building codes.

People whose homes were destroyed in the fires on Christmas Day last year and were covered under previous BAL ratings find themselves effectively underinsured, because their payouts fall well short of the cost of building homes to the higher BAL-FZ standards.

Diane Sisely, joint chairman of WyeSep Connect, the group representing the two communities during the resettlement process, says homeowners are “dismayed and disappointed”.

“There has been no adequate consultation to date about the BAL rating process with the community of Wye River and Separation Creek,” Dr Sisely told insuranceNEWS.com.au. “Clearly many residents are highly unlikely to have been insured to the level that they are now required to build to.”

Estimates suggest the maximum rating could add up to $300,000 to the cost of rebuilding homes in the coastal communities.

Media reports have suggested some residents whose houses were destroyed have taken cash payments from insurers and decided to build elsewhere. 

Dr Sisely says negotiations have been opened with the Victorian Government in the hope the decision can be reversed.

WyeSep Connect proposes implementing a series of mitigation measures instead of the BAL-FZ rating.

Dr Sisely says the insurance industry is not to blame for the shortfall many homeowners now face.

“I know the Insurance Council of Australia has been to a number of community meetings and that many insurance companies have been working effectively and sensitively with policyholders.”