Australia's House Standing Committee on Economics has released 86 recommendations in a report on an inquiry into insurers' responses to 2022 major floods claims.
The chair of the committee, Dr Daniel Mulino, said the title of the report — Flood failure to future fairness — reflected “the collective failure by insurers to meet their obligations to policyholders after the 2022 floods, and our hope for a fairer system in the future through the 86 recommendations in this report”.
Dr Mulino said that “too many cases were badly mishandled. Inconsistent decision-making meant neighbours received different outcomes after the same event. Long delays caused emotional, mental health, and financial strain. More than two years on, many people still can’t go home. Initial offers were often too low, which was especially problematic for cash settlements”.
Recommendations in the report include:
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registration of the General Insurance Code of Practice with ASIC; and that the Code be made enforceable through insurance contracts
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standardising key terms across all insurance contracts through legislated definitions, including “rainfall runoff”, “storm surge”, “wear and tear” and “lack of maintenance”
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new regulatory guidance by ASIC to clarify that insurers cannot deny claims based solely on expert reports that do not link the damage observed with the reported cause, including for hydrology and building reports
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requiring insurers to provide guidance to policyholders on any maintenance obligations up front, and that there be a presumption of coverage in cases where maintenance would be infrequent, costly, and highly irregular (for example, stumps)
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requiring insurers to decide on whether to accept or deny a claim within 12 months and if that doesn’t occur, that they be required to accept the claims in full
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requiring insurers to report key data on claims management performance to ASIC quarterly and, after a natural disaster, monthly; and that this data be published at the insurer and brand level, along with data on breaches of the Code of Practice.
Growing number of uninsurable properties
The report also responds to the growing number of uninsurable properties at very high risk. Dr Mulino said “some form of government intervention” would be needed for such properties, and that guiding principles for such intervention include the need for ongoing community and household level mitigation investment, and that no further development should occur in high-risk areas. Specific recommendations include:
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disclosure of flood risk levels through property conveyancing and rental agreements
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exploring regulatory mechanisms to discourage banks from financing new housing developments at a 1-in-100 flood risk or higher
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changes to building codes to boost flood resilience
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extending the Bushfire Resilience Rating App to flood risk
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requiring insurers to reduce premiums after household-level mitigation works
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further development of buyback and resilience programs for the highest-risk properties.
Insurers’ response
The Insurance Council of Australia (ICA) welcomed the Committee’s report, supporting strongly those recommendations which would put downward pressure on premiums and help safeguard communities from future extreme weather events.
These include the removal of state insurance taxes, ongoing government investment in resilience and mitigation, and changes to planning arrangements to stop development on floodplains.
The ICA also said that while they were small in proportion to the more than 300,000 flood claims received in 2022, the report includes too many examples of customers who did not receive appropriate service or even felt traumatised by their interactions with their insurer.
The ICA has commissioned its own report into the largest of the 2022 floods from Deloitte, and a follow-up progress report will be released by the end of this year.
The industry has already made progress towards many of the recommendations contained in the Committee’s report, including work on the development of a standardised maintenance and a wear and tear clause, and better identification and handling of vulnerable customers.
ICA CEO Andrew Hall said, “The four flood events across 2022 were unprecedented and saw more than 305,000 claims and A$7.7bn ($5.2bn) in incurred losses, including A$6.3bn incurred from just one event.
Insurers acknowledge there were failures of systems, processes, and resourcing in response to the extreme weather events that occurred during 2022, and the industry is already taking action to address these challenges.”