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Wednesday, 23 November 2011
Page: 13563

Mr SHORTEN (MaribyrnongAssistant Treasurer and Minister for Financial Services and Superannuation) (11:27): I move:

That this bill be now read a second time.

The Insurance Contracts Amendments Bill 2011 introduces amendments to provide for a legislative framework so that regulations can be made to establish a standard definition of 'flood' for home building, home contents, small business and strata title insurance policies and a key fact sheet in relation to home building and home contents insurance policies.

What this bill shows is that, after nearly half a century of delay following Cyclone Tracy and the 1974 Brisbane floods, the Gillard government has fixed a too long overdue problem.

This bill delivers on the government's commitment to provide consumers—everyday individuals, modest hardworking families and striving Australian enterprises—with a better understanding of what is included in their insurance policies and in particular, the extent to which policies provide cover for flood and what cover for flood actually means.

In recent times there has been a distressing increase in the occurrence of major natural disasters.

In 2009, the Black Saturday bushfires spread across over 450,000 hectares in Victoria, tragically killing 173 people.

In 2010 and 2011, areas of Queensland, New South Wales and Victoria experienced severe flooding with Queensland also suffering the effects of Cyclone Yasi. We saw the tragic deaths of 37 people as a result of these events.

A substantial portion of the financial costs of losses resulting from these natural disasters was met by insurance with claims currently estimated at $3.64 billion for Queensland alone.

These catastrophic events highlight the importance of insurance and making sure that individuals, families, communities and governments have effective insurance cover in place to guard against and recover from disasters.

In April, I released a consultation paper entitled 'Reforming flood insurance: clearing the waters'.

It contained proposals for a standard definition of 'flood' and a key fact sheet—both of which were designed to ensure insurers communicate more effectively with consumers. Further, industry and consumer groups have indicated broad support for these measures today.

This bill will implement these proposals with the aim of helping consumers make effective decisions in relation to their insurance needs, through increased clarity and accessibility of key information. Standard definition of flood

Schedule 1 to the bill will amend the Insurance Contracts Act 1984 to introduce a legislative framework for standard definition of the term 'flood' for home building, home contents, small business and strata title insurance policies.

As I said earlier, this should have been done many years ago—indeed it ought to have been done decades ago. The confusion has lingered on far too long.

Therefore, I am pleased that the Gillard government have demonstrated our willingness and capacity to deal with the hard issues and, with the collaboration of industry, consumers and local members of parliament, clarify for Australian families and businesses what constitutes a flood.

The definition is designed to provide a clear and easily understandable meaning for what is commonly known as riverine flooding, namely the covering of normally dry land with water that has escaped or been released from the normal confines of any lake, river, creek or other natural watercourse or alternatively, any reservoir, canal or dam.

A standard definition of flood will reduce consumer confusion regarding what is and is not included in insurance contracts. It will also avoid situations where neighbouring properties in the same street, affected by the same flood event, receive different claims assessments because the policies covering them use different definitions of flood.

Further, this measure will improve consumers' ability to evaluate potential insurance policies and compare 'like' products between different insurance providers.

Whilst this measure will not mandate the inclusion of flood cover in all insurance policies, it does ensure that whenever the term 'flood' appears in any of the relevant classes of insurance contracts, it will be taken to have the meaning I outlined earlier. Insurance contracts must not include the term 'flood' (or any related terms) except in association with the proposed definition. This restriction will also prevent said contracts from including compound phrases based on the term 'flood' (for example flash flood or accidental flooding).

The detail of this measure, including the actual wording of the standard definition, will be made in regulations contained in the Insurance Contracts Regulations 1985. Draft regulations containing these measures are expected to be released for public consultation by the end of the year.

Key facts sheet

Schedule 2 to the bill will amend the Insurance Contracts Act 1984 to provide a legislative framework to allow regulations to be made to introduce a requirement for insurers to provide a key facts sheet outlining key information in relation to home building and home contents insurance policies.

The key facts sheet will enable consumers to access key information in relation to home building and home contents insurance policies in a concise and easy to understand format. This will assist consumers in making more appropriate decisions when entering into these types of insurance contracts.

In order to ensure consumers are able to effectively utilise the key facts sheet, insurers will be required to provide this document to consumers as soon as they have requested information on the particular policy.

The introduction of the key facts sheet will make the purchase of home building and home contents policies simpler for consumers, assisting them to compare policies with a consistent document, and facilitate more effective and informed decision making.

The detail of these measures, including the specific content of the key facts sheet, will be made in regulations contained in the Insurance Contracts Regulations 1985. The draft regulations containing these measures will be released for public consultation in the new year. The key facts sheet will be consumer tested before being finalised.


In conclusion, the Gillard government are committed to improving the performance of the insurance market in Australia and we have announced our response to a number of other recommendations put forward by the Natural Disaster Insurance Review to help continue to provide an improved insurance market for all Australians.

I thoroughly believe that in some unexpected, unsought for and undesired way, natural disasters do tend to help us in Australia rediscover and remind us of our greatest strengths.

In this continent that we call home, we do often see natural disasters occurring. But if we remain strong and resolute, and industry and consumers work together as they have on this matter, we still can indeed see our way through to the future.

The legislation is mindful that, even in tough times, with people working together, we can make the best of what has happened.

The amendments in this bill are an important first step in improving Australia's insurance market through better disclosure of insurance cover for consumers—and clearing up the lingering confusion.

Further details of the amendments are contained in the explanatory memorandum.

I commend the bill to the House.

Debate adjourned.