Brought to you by Dr Daniel Mulino, federal Labor MP for Fraser
A federal parliamentary inquiry into insurers’ responses to claims from the major floods of 2022, including those in Maribyrnong, has found that significant changes are required to the way Australian insurers deal with their customers and where and how we build.
The Government also needs to work out how to protect the increasing numbers of people who can no longer obtain, let alone afford, flood insurance. Insurance is a critical financial safety net for people. Without it, they can lose everything and it takes people decades, if ever, to recover from a significant uninsured loss.
The inquiry, by the House of Representatives Economics Committee, which I chair, tabled its report, Flood Failure to Future Fairness, on 18 October. We recommend that:
- no further development occurs in areas of 1-in-a-100 flood risk or greater
- the Government finds a way to discourage banks from lending for proposed developments on high flood risk land
- states and local governments improve their flood mapping and accommodate future flood risks under different climate change scenarios to better inform land-use planning
- that existing and future flood risks be identified for individual properties and that this risk be disclosed to potential buys and tenants
- Changes be made to the Australian Building Code to require buildings in high flood-risk areas to better withstand flood damage. This would include using more water-resistant flooring, cladding and insulation, not installing power points at floor level and raising floor heights.
Home and car insurance premiums have risen by more than 50% since 2020. Last year, they rose by 16%. Many property owners who were flooded in 2022 are now underinsured or not insured. Insurers will not insure them or their premiums have jumped to $10,000 or more.
Dealing with a surge of claims following a flood or other natural disaster is a core part of an insurer’s business. They need to be able to scale up their services quickly. Since 2010, 15 weather events in Australia have resulted in insured damages exceeding $1 billion (indexed to 2022 values). In the past five years, the average annual cost of extreme weather claims has more than doubled to $4.5 billion, driven largely by floods.
My committee has recommended that the Government consider introducing a flood reinsurance pool for high-risk properties, like the cyclone reinsurance pool, or subsidies for high-risk properties but designed in a way that does not encourage further development in these areas.
The committee also recommended that governments deal with flood risk through public infrastructure and household mitigation. Buybacks of properties should continue, too, as should schemes that help people in high-flood risk areas make their homes more water-resistant. Good work is being done in this area by the Queensland and NSW state governments with joint funding from the Australian Government.
The committee recommended that insurers need to become more flexible when repairing or rebuilding flood-damaged homes. Rather than insisting on only replacing like for like, they could propose repairing or replacing properties using more resilient materials, even if on a smaller footprint. Tiles are more water resistant than timber floors, for example, and fibre-cement is far more water resistant than plaster.
The four major floods of 2022 resulted in 303,407 insurance claims, with losses estimated at $7.4 billion. Twenty-three people died in the floods and about 5000 homes were made uninhabitable. At the start of 2022, insurers were already dealing with many claims arising from six declared insurance events in 2021. As of last month, 1800 building claims from the 2022 floods were still not finalised.
These floods generated widespread and ongoing trauma and significant uninsured financial losses for the thousands of people affected. And then many people’s trauma was compounded by their experience with their insurer.
Reports filed last year, one by the Australian Securities and Investments Commission (ASIC) and the other by Deloitte found that insurers’ processes were poorly prepared for the ‘new normal’ – the increased frequency and severity of storms, floods and cyclones.
The floods in Victoria in October 2022 resulted in about 10,500 claims with estimated losses of $678 million. Many people in Maribyrnong and towns including Rochester and Heathcote, are still not back in their homes or living in unrepaired homes with unresolved building claims.
Problems with 2022 claims relate to inadequate staffing, poor communications with customers, long delays in claims handling, poor handling of complaints and claim denials based on inadequate supporting evidence or unreasonable applications of policy exclusions.
Individuals and consumer advocates said that policyholders were left confused about the claims process, conflicting advice was given about post-flood clean-ups, neighbours received conflicting claim decisions, customers could not speak to someone about their claim and would go weeks and months without getting an update.
Our inquiry recommends that insurers’ obligations under the General Insurance Code of Practice (Code) be strengthened and that the Code become a contractually enforceable element of the policyholders’ insurance contracts.
Confusing policy terms, such as those describing types of water damage, need to be defined in legislation, and the insurance industry must clarify policyholders’ obligation to ‘adequately maintain’ their properties. What level of ‘maintenance’ do they expect? What does a ‘properly maintained’ house look like?
Many 2022 claims were denied on the grounds that damage caused was due to poor maintenance or pre-existing damage, but where the owner could not reasonably have been expected to be aware of the problems. In other cases, insurers provided weak or no evidence to justify denying claims based on these exclusions.
Our report also recommends that insurers:
- improve their identification and treatment of vulnerable customers
- must continue to insure a damaged property while a claim or repairs are ongoing, and at a lower price that reflects the value of the damaged property
- improve the way they handle complaints and not abrogate their complaint handing responsibilities to AFCA
- pay for temporary accommodation as long as it is required
- improve the way they communicate cash settlement offers, include actionable quotes and a contingency sum to cover project management and unforeseen costs
- must pay out a claim in full if they haven’t made a decision on it in 12 months
- be required to provide more claims handling data to ASIC to improve their accountability
With an increasing population and urban growth, our report also calls for better identification of existing and future flood risks to avoid inappropriate developments and improve property owners’ awareness of flood risk. Insurers need to do more to educate policyholders about the actions they can take to mitigate flood damage and to reward those actions with lower premiums.
If implemented, these recommendations will help ensure that insurers and insurance products deliver what they promise and what they are legally obliged to do. They will also improve insurers’ accountability and reduce the extent of damage and associated trauma that future floods will inflict.
Daniel Mulino
Federal MP for Fraser
daniel.mulino.mp@aph.gov.au
(03) 9070 1974
Shop 1, 25–27 Clarke St, Sunshine VIC 3020
