The House Standing Committee on Economics has released its report on the inquiry into insurers' responses to 2022 major floods claims.
The Chair of the committee, Dr Daniel Mulino MP, said the title 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:
- registration of the General Insurance Code of Practice with ASIC; and that the Code be made enforceable through insurance contracts
- standardising key terms across all insurance contracts through legislated definitions, including "rainfall runoff", "storm surge", "wear and tear" and "lack of maintenance"
- 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
- 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)
- requiring insurers to make a decision 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
- 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.
Dr Mulino also highlighted recommendations to address inadequate temporary accommodation arrangements. "At present," he said, "the maximum guaranteed length often falls short of the actual time it takes to complete the rebuild. The Committee heard heartbreaking stories of families moving from motel to motel at short notice for months, only to end up camping in sheds and backyards after their allowance expired after 12 months – regardless of whether repairs on their home are complete. We believe insurers should, by default, assume the risk of how long it takes to complete works, and to bear the cost of temporary accommodation."
The report also recommends that insurers be required to give at least 3 months' notice of any changes to their temporary accommodation arrangements.
Dr Mulino also noted evidence heard on policy exclusions for pre-existing damage or lack of maintenance applied to parts of a building unobservable by policyholders, such as stumps. "Policyholders often pay premiums for decades with neither the insurer nor the insured knowing the state of the stumps," he said.
"It is understandably frustrating when, after a flood, the floorboards are taken up and an insured person or family is told that they won't be paid out due to the condition of the stumps. This aspect of coverage almost becomes a lottery," he said.
"The Committee recognises that insurers should not assume the risk of all pre-existing damage, but stumps are an example where too much risk is being placed on households. The Committee recommends that insurers should generally take on this responsibility."
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:
- disclosure of flood risk levels through property conveyancing and rental agreements
- exploring regulatory mechanisms to discourage banks from financing new housing developments at a 1-in-100 flood risk or higher
- changes to building codes to boost flood resilience
- extending the Bushfire Resilience Rating App to flood risk
- requiring insurers to reduce premiums after household-level mitigation works
- further development of buyback and resilience programs for the highest-risk properties.
