Insurance companies need to take a lead role in ensuring customers understand exactly what they are signing up for, an inquiry has heard.

Appearing before the House of Representatives inquiry into the insurance industry’s response to disasters, Brisbane city councillor Nicole Johnston said one of the biggest concerns is that most people don’t even know what they are buying and are unaware of any exclusions such as flood cover.

“If there are exclusions I think we need to find a better way of warning people,” she said.

“A lot of people are buying insurance online now and they are not looking at the details. You might find on page 56, under point 3A(1)(ii)(c)(b), that you are excluded from storm water recharge or something.”

Ms Johnston says currently there are a lot of exclusions in policies, every policy is different and there needs to be a clearer way of identifying these differences.

“Taking into account the fact that many people are elderly and that in the southern suburbs of Brisbane we have a very multicultural community, they need to be able to understand in simple terms what the policy means,” she told the inquiry.

“I cannot stress strongly enough the need for insurance companies to respond in a personal way to their policyholders by providing information that is relevant to their claim and household. Not doing this has led to much confusion and heartbreak for residents.”

Ms Johnston says a lot of this confusion and the resulting “grey areas” in the policies has led to many consumers seeking legal advice and filing complaints with the Financial Ombudsman Service.

Legal Aid NSW Senior Solicitor David Coorey told the inquiry there is a need for further investigation into what happens at the point of sale of an insurance contract, especially considering the number of people who believe they have been told they would be covered for flood.

“There is a discord there between the reality to consumers who think they might be covered, because they have been encouraged to take out insurance, and the fine print of the contracts, where things don’t happen,” he said.