Senior Associate, Mitch Coidan reviews a Federal Government announcement of a formal inquiry into flood insurance policy wording as a result of the devastating Queensland floods.
As a result of the increase in natural disaster insurance claims following the devastating Queensland floods during late December 2010 and early January 2011, a new Federal Government consultation paper has been commissioned which seeks, amongst other objectives, to provide a single definition of the term “flood” in insurance policies. It is intended that standardised definitions of common terms such as “floods” will apply across Australia to ensure that insurance policy holders are aware of what items will be covered by their insurance policy prior to experiencing loss as a result of a natural disasters.
Expectations are that the Federal Government’s consultation paper will recommend that its definition of the term “floods” should only appear in insurance policies.
Presently, the law permits policies to include terms such as “accidental floods” or “flash flooding” to describe what is covered but still exclude cover where a flood is caused by a river breaches its banks. The term “flood” has therefore been standardised and given plain English meaning, which will assist insurance consumers to understand what loss and damage arising from natural disasters will be covered.
The consultation paper contains the following specific proposals:
- A standard definition of “floods” for inclusion in insurance policies. The standard definition, which has been designed by the Government, in close consultation with the Insurance Council of Australia and consumer groups, provides:
“Flood means the covering of normally dry land by water that has escaped or been released from the normal confines of:
- Any lake, or any river, creek or other natural water course, whether or not altered or modified, or
- Any reservoir, canal or dam.”
- Stormwater run off will continue to be included in the standard cover for home and contents policies.
- Inclusion of a short “key facts” statement on policies that summarises the contents of the insurance policy and thereby enables consumers to clearly understand , at a glance, the key elements of the policy, such as what is covered and what is clearly not.
The consultation paper also includes information on recommendations for the the creation of other initiatives in policy drafting, including:
- Flood mapping
- Limitation on claims handling time
- A centre pay facility for payment of insurance premiums.
The proposals were the subject of public consultation, and submissions on the paper were invited to be made before 13 May 2011. All issues raised during the consultation process will then be considered by the Natural Disasters Insurance Review, which is due to report to the Federal Government by 30 September 2011.