Insurers Sort Out If Storm Or Flood Does The Damage

Newcastle Herald

Thursday July 31, 2008

By LESLEY PARKER - SMH

THE insurance industry is a step closer to clearing up some of the consumer confusion over who's covered and who's not in the event of a flood after Australia's competition regulator said it plans to allow insurers to use a common definition.

The Insurance Council Of Australia also hopes that the common definition the adoption of which would be voluntary for insurers together with development of a national flood map will mean flood insurance becomes more widely available in the next few years.

Flood insurance has been a source of regular controversy in the wake of soakings such as the Newcastle-Hunter Valley and Gippsland floods last year.

The problem is that some consumers can't obtain flood insurance even if they want it, while others think they have it but in reality only have storm cover, which is a different thing. In fact, flood cover isn't usually included as standard cover in home and contents policies but must be specifically added.

The Australian Competition and Consumer Commission supports the Insurance Council's proposed definition in principle but is considering further submissions on the proposal before making a final ruling.

In its draft determination, it notes that insurers' policy descriptions of flood differ widely and says a common definition will "go some way towards addressing consumer confusion".

However, the National Insurance Brokers Association expressed concern in an initial submission that the wording was too broad and so could have the effect of denying even more claims where flooding is an "exclusion" in a policy, as is usually the case.

The Insurance Council says it can be a misconception on the part of consumers that general home and contents insurance policies cover all types of water damage, with people failing to distinguish between storm and flood damage.

Karl Sullivan, the council's general manager for policy, risk and disaster planning, says this is despite the fact that insurers are required to spell out exclusions things they won't cover, such as floods in product disclosure statements.

Unfortunately, these product disclosure statement documents often go unread by the consumer, he says.

Emphasising that each insurer and each policy is different, Sullivan explains the main difference between flood and storm damage: "In a very general sense, inland flooding is water that flows out of a river, a creek, a canal, a dam or other watercourse, be it natural or man-made. It's water that, because of the amount of rainfall, simply has nowhere to go except, unfortunately, into a flood-prone property.

"Again, in a very general sense, water that falls on land and is flowing towards a river, creek, canal or dam is what many insurers will define as stormwater."

The central idea, Sullivan says, is where the water last came from.

You must check the specific wording of your individual policy, he says, and if you don't understand, phone the insurer to ask what it means.

Sullivan says the voluntary common definition is just one element in a continuing Insurance Council residential flood insurance project.

"The goal is to create an environment where more insurers offer flood cover to consumers," Sullivan says.

For instance, the industry, with the help of state governments, is on the verge of completing a national flood map that will allow insurers to see which properties are flood-prone and which are not.

Without this information, insurers haven't been able to accurately price the flood risk to individual properties.

Meanwhile, he says, consumers investigating separate flood cover should approach their local council and emergency services for information on flooding in their area. Then they should shop around for a policy that suits their circumstances. SMH

© 2008 Newcastle Herald

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