Who should pay for flood damage?
Flooding in Australia’s eastern states has seen more than 24,000 insurance claims lodged so far, with estimates that total costs will run higher than $200 million.
Queensland is bearing the brunt of the clean-up bill, with costs in excess of $187 million.
Obvious comparisons have been made to the 2010/11 Brisbane floods, however those costs exceeded $2.4 billion.
The resounding similarity is the criticism leveled at insurance companies over adequately and accurately covering their clients while offering market-driven premiums, amid rising costs linked to flood coverage.
A new survey from consumer advocate Choice has reported that 60 per cent of people have seen an increase in insurance premiums almost always connected to flood costs.
“Consumers are seeing their premiums double, triple and in some instances increase five-fold with often inappropriate justification from the major insurers as to why,” CEO of Choice, Alan Kirkland said.
“One minute major insurers have been telling consumers the price rises are necessary due to the large payouts from the 2011 floods, while the next they are saying the rises are because a property has been specifically checked out and identified as being in a high-risk flood zone.”
He said that consumers being priced out of the market is a major reason for under-coverage.
“Our major concern is that some consumers are forgoing household insurance altogether because they simply cannot afford the new premiums.”
CHOICE’s research shows that major insurers are also using inconsistent techniques to assess flood risk, including Google Maps and “secret” assessments that they will not reveal to homeowners, local government or the National Flood Risk Information Portal.
The explosion in premium prices also saw a 35 per cent increase in general insurance disputes lodged with the Financial Ombudsmen Service in 2011-2012.
Some insurance companies were state-owned, like the precursor of SunCorp, were privatised in the 80s.
Justin Malbon from the Monash University faculty of Law says that it’s a public policy question over whether homeowners should be subject to insurance industry market forces or a return to tax-funded government disaster coverage.
He also said that revisions to the Insurance Contracts Act since the 2010/11 floods have gone some way to properly define “flood damage” and “storm damage”.
“The terminology in a lot of policies was very unclear in their definition of what a flood was, it was extremely confusing, and for consumers it was hard for them to know and to some extent insurance companies were relying on the confusion to get out of paying up.”
Insurance Council of Australia CEO Rob Whelan said earlier this week that some of the recent flood damage could have been avoided if the state and local governments had done more.
“$40 million is good but it needs way more than that,” he told ABC’s Lateline program on Tuesday.
Queensland Premier Campbell Newman doesn’t have a problem with a debate about what more could be done for flood mitigation, but questioned the appropriateness of the timing of Mr Whelan’s comments.
He said a statewide flood mitigation program is underway, where local government chips in $20m and the state $40m.
“We’re getting on with it. Would we like to put more money in? Yes.”
Investors were not spooked at the underwriting responsibilities of the major insurance companies, with Insurance Group Australia (IAG) jumping six cents to $4.99 and QBE Insurance climbing 47 cents today.
Although the Brisbane-based Suncorp, owner of AAMI and GIO and set to be the worst affected of the major insurance companies, has already fielded about 4000 claims for flood and storm damage and their share price dropping a few cents in response.