No easy 'flood' definition: study

Photo / AAP

A study of 58 home insurance products offered in Australia found that while 57 policies covered storm damage, only 28 covered flooding from river water.

Vociferous debate over the definitions of storm and flood damage in insurance policies has surfaced again after many flood-hit policyholders in Queensland were dismayed to find themselves without adequate cover.

But according to financial research and ratings company Canstar Cannex, which conducted the home-insurance study, amending the situation is no simple thing.

Adopting a common definition of flooding for insurance purposes would not solve the problems for insurers or consumers, says Canstar Cannex research manager Chris Groth.

A 2008 attempt by the Insurance Council of Australia to define "flood" was rejected by the Australian Competition and Consumer Commission (ACCC).

Groth said that application followed a controversy over claims that arose after the Newcastle and Hunter Valley floods of June 2007.

"The definition seems straightforward and may have saved many current flood victims much heartache," Groth said.

"However, while it seems straightforward to a lay person, it was not acceptable to all interest groups and was subsequently rejected by the ACCC."

After at first granting conditional approval for the industry's definition of flood, the ACCC knocked it back, saying it raised too many uncertainties.

Groth said there was also resistance to a standard definition from consumer groups, who argued that a common definition of flood would restrict competition by preventing insurance companies from differentiating their policies and products.

"In addition, a broader definition could lead to higher premiums even for those consumers that do not require flood insurance," Groth said.

"This could in fact discourage some consumers from obtaining adequate or alternative insurance causing further detriment.

"Other groups argue that the adoption of broad-based definitions could be used to exclude all flood cover from policies including flash flooding or storm damage that are currently covered by the majority of policies.

"This would obviously not be in the best interest of consumers and only acts in the interests of the industry," Groth said.

The other key issue for insurance companies is access to accurate flood maps in order to price policies accordingly, he said.

"We saw in Brisbane (that) some areas flooded that were not affected in the 1974 floods, so in this scenario, even with a standard definition, some people may still not have been covered.

"A common definition cannot possibly cover all situations, and insurers will be compelled to include variations in their policy documents."

Groth said consumers would still need to read their product disclosure statements and make inquiries to their insurer about their level of cover.

"It would be best to make these inquiries via email and ensure you keep the written reply should it be needed in future," he said.

He praised Queensland-based insurer Suncorp, which provides automatic flood cover.

"For those who think all policy wording is long winded and complicated, then the Suncorp policy is worth a read," Groth said.

"They say: 'We cover loss and damage caused by storm and flood, e.g.rain, wind, hail, storm and damage caused by flooding from rivers, streets and canals.'

"Doesn't seem to be that hard."

*The definition of "flood" proposed by the Insurance Council of Australia in 2008 and rejected by the ACCC:

"Inland Flood is the covering of land that is not normally under water by: water that overflows or escapes from a naturally occurring or man made inland watercourse (such as a river, creek, canal or storm water channel) or a water pool (such as a lake, pond or dam), whether it is in its original state or it has been modified; or

"water released from a dam whether it be accidentally released or intentionally released to control, mitigate, regulate, or otherwise respond to excess water, or

"water that cannot drain or run off as a result of water that is overflowing or escaping from an inland watercourse or water pool preventing the escape of water."

- AAP