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Tuesday, 13 March 2012
Page: 2717


Ms OWENS (Parramatta) (21:16): I am actually really pleased to stand to speak on these amendments to the Insurance Contracts Act. It is in many ways a very technical bill. It deals with a very, very important matter, which is the way in which consumers are informed when they take out an insurance policy and the extent to which they understand the nature of their coverage. But the bill itself is quite technical. It deals with two aspects of the many reforms underway in terms of insurance in Australia, particularly a standard definition of flood and a key facts sheet. But rather than deal with those specifics which will be covered in the regulations, it deals with the way in which those elements are handled.

It deals with what insurance companies have to do with the standard definition; whether an insurance company can exclude high-risk items such as jetties or seawalls; what lead-in time is necessary for insurance companies to make the adjustments necessary to put this in place; and in terms of the key facts sheet, whether it is an electronic copy or whether it needs to be a hard paper copy; when it needs to be given out; whether it needs to be given on a cover note; and whether it needs to be given out every time a person changes their insurance. There are lots and lots of technical aspects that define the way in which the standard definition and the key facts sheet actually work in practice. Again, these are very important technical details because they will support some very important changes in the insurance industry particularly in relation to flood.

The changes that we are talking about today came about, as all of the speakers have said so far, because of the significant natural disasters during 2010 and 2011. When the major floods first started happening just before Christmas last year, I was actually out camping in a national park out of mobile phone range on my way up to Carnarvon Gorge. I did not realise that it was happening. Fortunately, I stopped at my parents' place and we did not quite go as far as we were intending. There were people helicoptered out from our next stop the next day, so we were lucky in the end. We got out of our parents' place the day before the road was closed and we drove through very shallow water most of the highway back. We only just made it back. We were some of the very lucky ones. Many, many others of course were nowhere near as lucky.

The aftermath of the flooding revealed that many people had inadequate or no insurance cover. The worst part of that is that many of those people thought that they did have appropriate cover only to find out, on top of the loss of their home and possessions and in many cases people that they loved, that the insurance cover they thought they had was in fact non-existent. That was the primary stimulus for the government putting together the National Disaster Insurance Review back on 4 March 2011. That review had a very serious look at the nature of insurance cover in Australia and made some 47 recommendations.

In parallel to that, the government also released a consultation paper called Reforming Flood Insurance: Clearing of the Waters in April 2011. The purpose of that was to engage the community in suggesting improvements to the regulatory framework and other aspects of Australia's insurance market. The paper contained two key proposals which were designed to improve clarity for consumers in relation to insurance policies and in particular the cover provided for various types of flood, namely, a standard definition of flood and a key facts sheet to outline the key information in relation to home building and home contents policies. The Insurance Contracts Amendment Bill implements those two proposals.

Its purpose, essentially, is to make it easier for people seeking to take out insurance to understand what it is that they are insuring their homes for. It also covers home building, home contents, small business and strata title insurance. It covers that group of people who are less likely to engage insurance brokers who, in most cases, wade through the product disclosure statements themselves, or do not in many cases. So it is particularly targeted at people who need help in working their way through what are incredibly complex documents.

As the member for Blair said in his speech, these product disclosure documents can be quite onerous. I also, like the member for Blair, think of myself as fairly confident when it comes to taking care of these things. I recently found myself in a situation where I had a bit of water damage in my home—not due to any external activity but a leaking pipe—and I found myself not knowing whether I was covered either in spite of my thinking that I was so clever and so on top of these things. I turned out to be covered but it could just as easily have gone the other way for me. When I sit down now, as I am doing at the moment, to review my insurance policies across a range of things, I realise that it is really a two-day job by the time you sit down and work your way carefully through these rather long documents, particularly if you want to compare one policy with another. It really is a substantial task indeed. Again, anything that we can do that makes it easier for people who have the good intention of covering themselves well to do that is a very good thing. One of the problems with the current flood definitions used by insurance companies is that there are three broad categories of flood. There is stormwater rainfall run-off, sometimes called 'flash flooding' and so the word 'flood' appears in definitions relating to those. Usually the term refers to high-intensity short-duration storms which produce localised flooding and most insurance policies but not all of them cover this risk—again, the words 'flash flooding' might appear under current regulation. Then there is the riverine inland flooding, which is inundation caused by watercourses or catchments overflowing their banks due to long duration rainfall over large areas. Some insurers provide cover for this risk, but many do not. Whether it is included or excluded in the definitions of this can vary greatly. The third category is actions of the sea, sea level rise and storm surge, which is inundation caused by movement of seawater. Few insurance policies cover this risk and we have seen people particularly on rivers closer to the ocean that were caught in the definitions of flood where insurance companies saw in some cases that it was tidal rather than riverine. So there are three basic definitions. For a person in the street it is hard for them to see how those definitions are clear. It is very easy to see how a person reading through a very lengthy product disclosure statement, who is not familiar with the way insurance companies think of these three types of flood, could be confused by what their insurance policy does or does not cover.

The standard definition of 'flood' does something really simple. It means that if you use the word 'flood' you will be referring to riverine or inland flooding, according to the definition in the regulation. So if you use the word 'flood' at all in the insurance policy, it will refer to that definition, which means that things like stormwater rainfall run-off and actions of the sea may be covered separately but they will use different terminology. It clarifies quite substantially what is covered in an insurance policy. Under current law the term 'flood' is not defined in the act, which results in insurers defining the terms in different ways, as I just described. Under the new law, insurance providers will be required to use a standard definition of the term 'flood' in all cases for home and building contents, small business and strata title insurance policies and their supporting documents. The term 'flood' will be defined in the regulations.

The key facts sheet is also something people wanting to compare insurance policies or wanting a clear picture of what they are covered for will find very useful. It is a short statement of one page which outlines what the insurance policy covers, what is not covered, the cooling-off period, what type of cover is offered under the policy and an explanation of how the key facts sheet is to be used.

Under the current law, the existing disclosure obligations in the Corporations Act require an insurer to disclose information in a product disclosure statement, which again can be quite long. I think my home and contents one is 47 pages. Last time I asked my insurance company about flood insurance, they told me that I could probably find it on page 22. I am not sure I would have got to page 22 if I was in a hurry. Many people are in a hurry when they take out insurance policies. People move home, people buy a home, people move into a new flat and they quite often find themselves wanting to cover their contents quite quickly. So there are many reasons why we do not get to page 22 of our product disclosure statement.

The new law, in addition to that existing product disclosure statement, requires the insurer to provide a key facts sheet, which outlines the information I described before. There is widespread support for these amendments. It is something the community has wanted for a long time and it is that business supports. In submissions to the Economics Committee's inquiry, industry was highly supportive of both the standard definition of flood and the key facts sheet. The National Insurance Brokers Association commented as a general statement that they support both of the initiatives—the standard definition provisions in relation to flood and the key facts sheet. Similarly RACQ Insurance supported both measures. The Insurance Council of Australia commented that they strongly endorsed both of the initiatives—the standard definition of flood and the key facts sheet—and in addition to the industry groups, the Consumer Action Law Centre was also highly supportive of the initiatives. It is worth quoting them. They stated:

We understand that there is now broad agreement on the proposed definition of flood. This is something we strongly support. We believe that a standard definition will assist in reducing disputes about when someone who experienced a flood is or is not covered. Key facts sheets, which are designed to provide simple and accessible information about a policy so that a consumer does not have to wade through hundreds of pages of product disclosure, is also a good reform which, if implemented properly, will empower consumers in the marketplace to make more effective choices.

I might also comment on the extent of consultation that went into these amendments and the consultation which is still going on into the regulations for the key facts sheet and the definition of 'flood'. It was clear when in its public hearings the Economics Committee met with representatives from the Treasury, the insurance industry and the consumer groups that there had been substantial consultation. Industry raised some technical issues which were of concern to them and it was clear that the discussions with Treasury on finding answers to their concerns were well and truly underway. The economics committee agreed that a number of those issues were quite serious and that the consultation process to find answers was well underway. It was clear that the consultation process had been quite effective. Industry concerns were being taken into account. If you read the transcript, you will see that it was probably one of the easier public hearings, where for virtually every issue there was already an answer.

Debate interrupted.