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Wednesday, 14 March 2012
Page: 2977


Mr BUCHHOLZ (Wright) (12:15): The Insurance Contracts Amendment Bill 2011 seeks to change the insurance laws by introducing a standard definition of flood insurance contracts and a key facts sheet that is required to be provided for home building and home contents insurance policies. The coalition will support this bill; however, we have a number of concerns about the final implementation of the measures it introduces.

Following the major floods in 2010 and 2011 in parts of Queensland, New South Wales, Victoria and Western Australia the issue of inadequate flood insurance cover and confusion about what was covered in insurance policies has become predominant. There were seriously damaged households with no or inadequate insurance coverage. Wide variations in the definition of 'flood' between insurance policies and the lack of understanding of what was covered by policies contributed to these gaps in insurance coverage.

My electorate of Wright was enormously devastated by the floods 12 months ago. A policy holder came home after having been evacuated from their town to be standing in their dining room with evidence of up to four feet of water having been through their living room. At least their house was still there. In some cases people's houses were still inundated with water. There was a degree of comfort that came over those people, who had been paying insurance premiums for 20 and 30 years with good intent, as they believed their houses were insured. Can you imagine their despair, after losing their worldly possessions and in many cases losing loved ones, when hydrology reports on the area indicated that their policy did not cover them as the determination was that it was riverine flooding? This bill seeks to address and recalibrate the definition of flooding to a standard definition through all insurance policies.

To give the nation an idea of the degree of flooding and the devastation that was incurred by the people of Wright particularly, I draw on the example of the Steinhart family. Sue relived the story of devastation that she underwent. They have a low-set house; it is about two or three feet off the ground, like a typical housing commission home. It goes down the back steps onto a concrete pad, which is their laundry. She was out the back in the laundry and she felt two or three inches of water under her feet, up to her ankles, and because it was not raining she thought that the washing machine had overflowed. She opened the back door to try and let the water out, and the wheelie bins at the back of the door were starting to float away. She grabbed a couple of pumpkins to put on top of the wheelie bins to stop them from floating around. There were three pumpkins and by the time she had picked the last one up, the wheelie bins were gone. By this stage the water was up to her knees. She went up the two steps in fright to find the kids, while trying to assess how quick this water was coming.

The kids were playing in the bedroom. She got the kids out the window up onto the carport skillion on the side of the house. By this stage the water was up to her hips. Her husband was in the other bedroom trying to smash the window open, panicking. He got the window out and got the last kid up onto the skillion. By the time the family had evacuated onto the skillion the water was lapping onto the skillion roof and they scrambled to get onto the main roof—the apex of the house. They got onto the apex. I said to her, 'How long did all that take to evolve?' She said, 'As long as it took me to tell you this story.' That is how quickly the water came. My heart goes out to those families in Queensland that were downstream from us. They are experiencing flooding in Victoria at the moment. I understand the mass devastation that happens as a result of flooding. In Wright we had very little notice. Subsequently, we suffered an enormous loss of life.

In speaking in support of this bill, if there is a bipartisan message—leave all the politics out of it—that we can share with Australians, and in particular Australians that may not be affected by floods this time, it is this: pick up the phone, spend 40c, invest that time with your insurance company and get some peace of mind. This bill will cover definitions of flooding for new policies. I really want to encourage Australians who have insurance to satisfy this in their minds. Do not leave it until the disaster season; pick up the phone, ring the insurance companies and get some idea as to whether or not they are insured and what the definition of flood means to them.

The Natural Disaster Insurance Review was commissioned on 4 March 2011 in response to this problem. Consultation commenced on 5 April 2011 and review recommendations were received by the government on 30 September 2011 but not released until November. The report contained 47 recommendations providing independent reviews of issues relating to the insurance in light of the natural disasters. Despite having six weeks to consider the recommendations, the government deferred decisions on 39 of the 47 recommendations. In fact, the biggest decision it made was that it was committed to further reviews. It seems to be a common motif of government—why govern when you can have a review, an inquiry, a reference group or some official sounding form of procrastination? It is all or nothing with this government. It is either endless procrastination or knee-jerk reactions. It is either weak-kneed indecision or frantic overreaction. Mining tax—snap decision. Live exports—snap decision. Asylum seekers—months of inaction followed by one knee-jerk reaction after another. Climate change—'Yes we are, no we're not. Wait for a while. No, definitely not under a government I lead,' and finally 'Yes we are,' again.

Returning to the legislation, this bill makes two changes to insurance contracts law following from the review. It provides for a standard definition of flood insurance contracts and requires that customers are provided with a key facts sheet outlining information about their home and building contents insurance policies. However, this is enabling legislation only. Both the standard definition of 'flood' and the specific contents of the key facts sheet will be made in regulations by changes to the Insurance Contracts Regulations 1985.

The industry supports these changes although they have some concerns about the final version of the regulations. As is often the case with the coalition, we see bills come through the House where the intent of the bill may be there but the devil is in the detail. With this particular bill we share the industry's concerns that we do not have the regulations tabled as yet. However, in general, the changes are seen to be acceptable given the level of confusion and uncertainty that surrounded the issue of insurance coverage in the wake of the 2010-11 floods and the industry supports the purpose of the bill. The coalition will be watching the final regulations closely to ensure that they provide adequate certainty to all parties to insurance contracts. 'Certainty' is the key word here. What annoys the living daylights out of people is not knowing where they stand, particularly if they have just gone through the worst experience possible, which I outlined in my opening comments. The standard definition of flood will mean that every time the word 'flood' appears in an insurance contract it will be taken to mean the definition as outlined in the current regulation across all insurance companies. The legislation also restricts contracts including compound phrases with the word 'flood', such as 'flash flood' or 'incidental flooding'. The legislation does not require that all insurance policies insure against flood.

The coalition has consistently supported efforts to develop a standard definition for 'flood' across the entire country and across every insurance company. After the floods in New South Wales in mid-2007 and in Queensland in 2008, the common definition for flood was put forward as an important change by the industry at that time. The federal Labor government did nothing to progress a common definition for flood after the ACCC scuttled previous attempts to ensure such a definition in 2008. It took the disastrous floods of 2011 for Labor to finally consider this matter again. The coalition supports recommendation 36 of the Natural Disaster Insurance Review that the government introduce a standard definition of flood so as to avoid any consumer confusion surrounding flood coverage within insurance policies.

I also take this opportunity to note the contribution of the Standing Committee on Social Policy and Legal Affairs in its inquiry and the members for Blair, Moreton and Murray, who played a vital role in travelling through the country and receiving evidence in that inquiry. I note their contribution to assisting communities with reference to understanding insurance ramifications. The final report recommends the definition of flood be as proposed within the Reforming flood insurance: clearing the waters consultation paper:

'Flood' means the covering of normally dry land by water that has escaped or been released from the normal confines of:

(a) any lake, or any river, creek or other natural watercourse, whether or not altered or modified; or

(b) any reservoir, canal or dam.

That is basically an extension of riverine flooding, where it comes up out of a creek bed and which would normally make your flood insurance nonvalid. The example I gave you was about the Steinhardt's, whose house backed onto a creek. Even though a 23-foot wall of water came across the flat, the insurance company took the position that, because the water came down through the creek bed first and came up out of the creek milliseconds before a 23-foot wall of water followed it, it was deemed to be riverine flooding.

It should be noted that, with the present disaster season well underway, the benefits of any standard definition will be deferred until the legislation passes. The bill requires that a key facts sheet be provided, outlining important information in relation to home building and home contracts insurance policies. The key facts sheet is meant to provide consumers with key information to allow them to more easily understand and compare insurance policies. We all know how flippant we can be with insurance policies. They have two to three pages of fine print and 'would you sign on the bottom line and forward, John'. The intent of the key facts sheet is to outline some of the basic principles that your policy should cover. The draft requirements of the key facts sheet has not yet been released. In his second reading speech Minister Shorten stated that the government would release the details in 2012 and that they would be consumer tested before being introduced. Industry does not object to the key facts sheet but there are some concerns about its final form.

While the industry broadly supports the changes in this legislation, some concerns still remain. Specifically, my colleagues and I on the House Standing Committee on Economics take issue with elements of the final report on the bill. Specifically we are unable to agree with paragraphs 2.50 and 2.51 of the report, which outline assurances that the Department of the Treasury was engaged in consultative dialogue with the industry and consumer groups as well as the observation that there were 'no points raised in submissions or at the hearing that the Treasury was not already across or was not taking steps to consider solutions'. The clear evidence from the industry representatives at the hearing was industry's frustration that many issues, as identified in this report, that have been raised with the government over the operation of the Insurance Contracts Amendments Bill remain unresolved, with industry awaiting comprehensive consultation on regulations before obtaining any clarity on the identified issues. We note that, disappointingly, the bill has missed much of the detail craved by industry to bring certainty.

In closing, I would like to offer my sincere and heartfelt concern to those people in parts of Australia whose homes are currently inundated. I pray that there should be no loss of life, because the form of the flooding is not similar to ours, but flash flooding. Our hearts go out to everyone concerned and may God bless them in their recovery.