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Standing Committee on Social Policy and Legal Affairs
03/08/2011
Operation of the insurance industry during disaster events

KELLY, Mr Paul, Carnarvon Chamber of Commerce and Industry

LEWIS, Mr Mark, Manager, Policy and Industry Development, Department of Agriculture and Food, Western Australia

Committee met at 11:37

CHAIR ( Mr Perrett ): I declare open this public hearing of the House of Representatives Standing Committee on Social Policy and Legal Affairs in its inquiry into the operation of the insurance industry during disaster events. I acknowledge the traditional custodians of this land and thank them for their continuing stewardship. Thank you for having us here today. We have had the pleasure of meeting and talking with councillors and government officials from the shires of Carnarvon and Upper Gascoyne this morning. Later we will be taken around the Carnarvon area to visualise the impact of the disasters. We saw some photographs earlier. Your federal MP, Barry Haase, wanted to be here today but had prior engagements and sends his apologies.

This social policy and legal affairs committee is one of a number of House of Representatives committees at Australian Parliament House, which is a long way away in Canberra. Committees run parliamentary inquiries into various topics. This committee is currently holding an inquiry into the operation of the insurance industry during disaster events. As part of the inquiry the committee invites submissions from interested organisations and individuals relating to the terms of reference and encourages insurance policyholders to participate in our online survey about their experiences with insurance claims arising out of extreme weather events. If you have friends or family who have not filled out the survey, you should give them one of the cards from the back of the hall. In addition, the committee holds public hearings around Australia to hear from affected communities and businesses and from various bodies related to insurance, such as insurance institutions, legal aid organisations, which we heard from yesterday, and financial advocacy groups.

The evidence received at public hearings, the submissions to this inquiry and the findings of the online survey will all go towards the committee's final report on the inquiry. The report will contain a number of recommendations to the federal government aimed at improving the responsiveness of the insurance industry to disaster events. The committee cannot investigate or make rulings on specific insurance cases; however, our aim is to learn as much as we can about what happened here with respect to insurance coverage and claims so that we can make recommendations to the government so that the path may be easier for people in the future.

If anybody would like to speak to us today, please make yourself known to Natalia at the table at the rear. If you would like to contribute to our inquiry in other ways, even if you do speak today, we strongly encourage you to make a written submission or, as I said, complete our online survey. This hearing is open to the public and a transcript of what is said will be placed on the committee's website.

We are aware that many of the people we meet during the course of this inquiry are suffering or might be suffering from financial hardship and emotional or psychological trauma from their experiences and their loss. We also understand that people may be enduring additional financial and emotional hardship during the recovery processes, especially when these are hampered by serious delays and financial and emotional setbacks.

It is vital that people seek support from their family, their friends and from the broader community in these times. Sometimes expert assistance is also required. It is important that help is sought from the right people who can provide it and, on the table at the back, there are information sheets that you are most welcome to take with you, if you like. These list resources that some people may find useful to access at times like this such as financial advice, credit relief, legal aid, counselling and so forth.

Before we begin, I would like to introduce myself and the other members of the committee. My name is Graham Perrett. I am the federal member for Moreton, which is an inner city suburb of Brisbane in South-East Queensland.

Mrs MOYLAN: Judi Moylan—I am the member for Pearce in Western Australia.

Mr NEUMANN: I am Shayne Neumann the federal member for Blair based on Ipswich and the Brisbane Valley in South-East Queensland.

CHAIR: We are looking to cover the following topics: insurance coverage and affordability; your experience of how claims are assessed and processed; what happens when there a dispute insurance assessment; and the procedures for dispute resolution. I now invite you to make a brief introductory statement about who you are and your particular insurance experience.

Mr Kelly : I am representing the Carnarvon Chamber of Commerce and Industry. By profession, I am a banker, so I have a fair bit of experience with insurance matters.

Mr Lewis : I am with the Department of Agriculture and Food Western Australia. I have led a number of disaster relief committees in the last 10 to 12 years, starting with the previous flood, Cyclone Vance and this most recent flood. They are not particularly related to insurance; it is more about the reconstruction, if you like, from the WA government's perspective.

CHAIR: Mr Kelly, would you like to talk about your actual experience?

Mr Kelly : During the course of the floods?

CHAIR: Yes.

Mr Kelly : I had requirement both through my bank, the ANZ Bank, and the chamber of commerce to meet with a number of people to discuss insurance claims. In the main, most people understood, particularly the farming community and horticulturalists, that flood was not covered under their policy.

CHAIR: So these were all businesspeople?

Mr Kelly : In the majority, businesspeople. Where it got a little bit grey was dealing with businesses in town and particularly the issue of whether it was rising floodwater that caused the damage or the rain through the roof sort of scenario.

CHAIR: Were there are few days between the rain falling down and the river coming through?

Mr Kelly : Yes. The weather stats will show you that we had a period of intense rain leading up to a few days before the actual flood came down. Most of the water from the flood obviously fell well inland—probably 200 to 300 ks inland. It may have been out of the same system but it was accumulated water that caused the flood. But certainly there was localised flooding caused by the torrential rain Carnarvon had prior to the flood event.

CHAIR: You said most people understood what they could and could not claim.

Mr Kelly : On the river most of the horticulturalists are fairly familiar with their insurance arrangements. They use a number of local brokers, a couple of whom are based here. They appreciate that if the water rose it was not there. In saying that, there were several instances where the water had actually penetrated through the roof, so there was a partial claim. It was not until I prompted a number of them to go forward to their insurer to make those inquiries; they would have just drifted off the radar. In a lot of cases they were not aware of it. Carnarvon is probably unique in its growing area in that there are a large number of ethnic and other languages involved, particularly Vietnamese. You have a language barrier there, so the people who take out the insurance policy are probably aware that flood is not in there but probably not aware of asking the right questions of their insurer.

CHAIR: Have you heard of policies being in Vietnamese?

Mr Kelly : I am not aware of that. There is a smaller Portuguese community and Croatian some of whom do not actually read or write in English.

CHAIR: Portuguese from Portugal or Portuguese-speaking from East Timor.

Mr Kelly : Portuguese from Portugal. There are obviously Croatians.

CHAIR: So in that time between the rain coming down and the flood coming along, is that when you spoke to people about the fact that they could make a claim, or was it after the flood event?

Mr Kelly : That was pretty much after the flood. The river came down on the Sunday, so it was a weekend, the week leading up. So it was a week, probably two weeks, after the event, and some of it as late as January-February that I made a few aware. I guess that it was only after speaking to insurance brokers around town that things had been done for other people and I made more inquiry that it was deemed that the ingress of water is not floodwater.

CHAIR: As the business peak body you were able to disseminate that information to your members.

Mr Kelly : We do not do that good a job on this as a chamber. It was more a personal one-to-one relationship.

CHAIR: With your professional hat.

Mr Kelly : Yes, as a bank, but also as a friend of some of the people.

CHAIR: Were people coming to you and saying, 'We didn't understand this in our policy, it is on the grapevine that we cannot claim floods'? What was the experience?

Mr Kelly : For the horticulturalists, in my opinion most of them were aware that flood is not covered. That is probably by virtue of a number of flood events over the years. It was the water through the roof scenario that a lot of them were unaware of.

CHAIR: Do you know how they went a few months on? I imagine you have cleaned up, you have moved on.

Mr Kelly : A lot of the damage is still unrepaired. Carnarvon does not have a huge excess of contractors, so probably March, April, May and June a lot of places still had repairs yet to make.

CHAIR: So you could physically see that this roof was damaged. There were some more rain events anyway afterwards, after the big one.

Mr Kelly : Yes.

CHAIR: So people were taking photographs. Have you heard that they were successful?

Mr Kelly : Yes, some people have been successful. I guess it is just a matter of the water people that the insurers employ.

CHAIR: Hydrologists.

Mr Kelly : That certainly came up. As I do recall now, at one of the initial grower meetings we had an underwriter, a loss adjuster, that suggested to people to carefully look at how the water came in, that certainly if it came through the roof or something there may be an ability to claim. That gentleman was at one of the original grower meetings at the Dalmatia Club which probably had 100 or 150 growers attending.

Mrs MOYLAN: One of the things that has interested us is the different approaches by different insurance companies. Did you notice a wide variation in the speed of services, and perhaps also when people took out policies did some companies take time to explain what was excluded as well as what was included in policies? Do you know?

Mr Kelly : No, I cannot say that. There was not to my knowledge, apart from perhaps Elders and maybe WFI; they actually had people that came up. I do know that the loss adjuster or adjusters—there might have been two or three—seemed to work for a number of companies, so they were basically external to the insurance companies and were contracted to come up.

CHAIR: Contracted by the insurance company or by the growers?

Mr Kelly : By the insurance companies, which got their loss adjusters to come up. The loss adjusters are generally an external business. I do know the floods in Queensland exacerbated the problems of getting loss adjusters here, because a lot of them then flew off to Queensland, of course.

CHAIR: And hydrologists as well; they were a bit scarce on the ground.

Mrs MOYLAN: Some companies were more responsive more quickly than others, I take it.

Mr Kelly : I could not comment on that. I am sorry.

Mr Lewis : I think that, as Paul said, because of the history of the place and the number of floods that we have had over the last 30 or 40 years, most of the growers know that inundation from a flood is not covered. Really there are only odd cases. It was not only this river; there was the Wooramel River as well, where there was the only case that I know where there was a hydrologist involved.

CHAIR: Where is that?

Mr Lewis : It is the next river down. In that instance, that was caused by rainfall and that rainfall then collecting and going through the plantation and the sheds and that sort of stuff. They first said that that was not a claim, and then they got their own hydrologist in. Between those hydrologists it was sorted out, and there was a claim; it was for only $30,000 or something like that. So there was a little glitch, if you like.

CHAIR: So, when the client's expert came in and argued with the insurance company's expert, there was some leeway.

Mr Lewis : Yes. The client's hydrologist was able to prove that it was that event that caused it. It was not the flood; it was the first event of the rain. But that is the only case I know where a hydrologist has been involved.

CHAIR: Mr Lewis, do you know if that $30,000 was the capped out amount for that clause, or was it just ex gratia?

Mr Lewis : It was capped out. There was way more damage than that. That is the other thing. Where some of the confusion comes is that, once it is declared a natural disaster, the insurance companies do at times—depending on the insurance company—provide ex gratia payments of $20,000, and then they discount for the state funding and those sorts of things that are coming in for furniture, whitegoods and all those. So there is a lot of confusion around there. From our side—from the state government's perspective—when I was developing the recovery scheme, the state government offered up $3 million. You then have to work out what is insurance and what is going to be a grant, and there is a lot of argy-bargy around that, because there is this potential to double up from insurance funding and to a grant fund on top. So you get some—

CHAIR: How did you do that?

Mr Lewis : It effectively comes back to the fact that, when you sign up for the grant, you acknowledge that if there are any insurance claims then you must declare that.

CHAIR: So it is a bit of an honesty—

Mr Lewis : Yes, plus a stat dec sort of arrangement when you sign off.

CHAIR: I know we are drifting off the topic and I know Mr Neumann has a question but, in terms of the interaction between the insurance companies and the state—

Mr Lewis : There is none.

CHAIR: There is none at all? No follow-up?

Mr Lewis : As you say, it is almost merely an honesty system. Obviously if there are cases where we know that insurance has been provided and that has not been declared or taken off, if you like, then we have the option of investigating that case and seeing whether there is any fraud.

CHAIR: So how would you know that? By talking down at the pub?

Mr Lewis : Basically. It is a pretty small town.

CHAIR: But the insurance company would have a duty of confidentiality to the client.

Mr Lewis : Yes, they do not declare it.

CHAIR: But in a small town there would be someone who had heard or whatever.

Mr Lewis : As I said, my general experience is that there have been a number of events and I have been in charge of the recovery of those. After Cyclone Vance, which was purely a storm and tempest, WFI were very, very good in paying out for all the windmills and those sorts of infrastructure. They were brilliant actually. Although there was a government grant system in place, they came in before that. They knew there was a chance that the state would come through with a grant scheme, but they picked it up.

CHAIR: Was it a state government grant scheme because there was not funding for the earlier one?

Mr Lewis : There are two. There are the natural disaster and relief arrangements and then there is nearly always a dedicated state program. We have got the option.

CHAIR: It is a safety net sort of thing?

Mr Lewis : Yes. You could call it that.

Mr NEUMANN: Can you tell us about the timeliness of the response of the insurance companies.

Mr Kelly : The initial response, in terms of bringing loss adjusters up here, was within a week. There were some complications in getting them here, because of the flights, and in getting the growers in from the river, because the highway was still flooded. I would say it was probably the Monday after.

Mr NEUMANN: What about the claims process that people are going through? They are just doing their jobs by turning up. They are not actually dealing with claims when they turn up.

Mr Kelly : I think the claims process in our particular circumstance would have been a lot easier if it had not been for what happened over east. It seemed that the insurance companies I was dealing with on behalf of customers, by two weeks after the Queensland incident, were just overloaded. I just made a note here that, by constantly ringing them, you must have got your claims pushed up the line. With a lot of it, you would ring up to start with and it would be, 'No, we've not even got your claim.' I said: 'Well, I've got a fax here that was sent a week ago. It has all gone through.' Then it was 'Send it to me'—to a physical person—and they saw it through. Once you have got a contact there, that is how you go on fairly easily. But they were probably overwhelmed by it.

CHAIR: We heard in the council chambers that it was the forgotten flood, because of the Queensland events. Can you comment on that? You are talking to two Queenslanders here who were flooded!

Mr Kelly : My personal view is that, once the Queensland incident came along, it was obviously far more devastating in terms of loss of life and infrastructure. From the claims viewpoint, I think it went into a big sausage factory and they did not have the resources to cope with probably a one-in-100-years event in Carnarvon and probably a one-in-100-years event in the eastern states.

Mr NEUMANN: Let us talk about that. Were any of the members who were flooded, and your clients, told about the industry's voluntary code of practice, of the requirements upon the insurance companies to respond in a timely way?

Mr Kelly : I am not aware. I appreciate there is a code of practice, but it never came back through.

Mr NEUMANN: Were you, or any of your members, or people you were dealing with, aware of the fact that, within 10 days of a claim being made, the insurance companies are required to respond and decide on—accept or reject—the claims?

Mr Kelly : No.

Mr NEUMANN: Were you aware that, within every 20 days of a claim being made, the insurance companies are duty-bound under that code of practice to keep reporting to the claimants?

Mr Kelly : No.

Mr NEUMANN: What about the fact that, within 10 days of a person notifying the insurance company of a request for information, the insurance company has to respond to that request? What about the requirement of insurance companies, if it is a complex matter, that within about 45 days, including any dispute resolution processes, they are duty-bound to advise the claimant that, if they cannot resolve the matter, they have to come to an agreement with respect to alternative time frames because of the complexity of the matter? Did any insurance companies talk to you about any of those matters?

Mr Kelly : No, all I did was with the clients and went directly through their claims lines and got hold of a person. In a lot of instances, as I said, the forms went off—they were faxed off, as was asked, in some instances even emailed, but certainly the fax was the predominant use. You would ring and find out where it was and get, 'We don't know.' But then when I got hold of a person there and re-faxed information it got to a person and then seemed to travel on fairly smoothly.

In respect to the contact, the clients may well have been contacted in those times, but I was specifically trying to get the insurance claim moving. Once it was done it was up to them. Yes, in some cases the claims were probably rejected. In other cases I do know that, because of the nature of the damage—leaks through the roof, carpets, machinery may have been damaged; flood does not become an issue with motor vehicles—that would all move along. I can appreciate that they are probably not geared for that.

Mr NEUMANN: That is their business, Mr Kelly—that is what they do. If they are in the business, they have to be geared for it. If they are not geared for the business, then they should get out of that business, because they handled the events in Carnarvon and in South-East Queensland. That is what they are there for. Are you aware of any of the insurance companies who rejected claims advising your clients or your members about the complaints-handling procedures under the policies of insurance?

Mr Kelly : I cannot say personally, but I would suspect that as part of that identification process there would be details on the dispute resolution process.

Mr NEUMANN: Are you aware of any of your members being unhappy with the dispute resolution processes and going to the Financial Ombudsman Service for resolution of their issues?

Mr Kelly : Not at this point.

Mr NEUMANN: Are you aware, if anyone is not happy with date process, that any of them talk any civil litigation against any of the insurance companies?

Mr Kelly : Not at this point.

Mr NEUMANN: Thank you.

CHAIR: Mr Kelly—Mr Lewis, you might be able to add to this as well—is there anything like crop insurance in the area—

Mr Lewis : No.

CHAIR: or even once it is harvested and in the shares?

Mr Kelly : No.

CHAIR: So all the insurance we are talking about is the fixtures or equipment on the property rather than crops?

Mr Kelly : Yes, the fixtures and the equipment—what we know can be ensured. Out there they have shade structures which are not insurable because of the nature of what they are.

CHAIR: So the shade is not insurable.

Mr Lewis : Outside the levy there are a number of commercial businesses—you will probably hear from them later—in terms of caravan parks and those sorts of things. I am aware there is potential for loss of income insurance. QBE are now offering that as a package rather than normal storm and tempest and/or flood.

CHAIR: Them. In terms of that market failure, if we can call it that, not being able to get the shade cloth insured, have been told by your members that they cannot get insurance or have heard?

Mr Kelly : No, the crop structures and the crops are not insurable. You can insure a wheat crop against fire or hail, but all other risks are risks of doing business.

Mr Lewis : Some of the big crop netting is insurable, but it has to be through a town planning process and have been approved by the shire engineers. Then they may look at that.

CHAIR: Do ANZ have an insurance arm?

Mr Kelly : ANZ is with QBE.

CHAIR: Do they own QBE.

Mr Kelly : It is a partnership.

CHAIR: So QBE does not offer that that you are aware of?

Mr Lewis : It has to be approved through the town planning scheme. It is generally the big bird-netting structures—you will see them later.

CHAIR: Is that because of the expertise of the engineers in the town planning area?

Mr Lewis : I think it is a rule back in the town. The town planning scheme offers a certain amount of engineering kudos to the structure. Therefore the insurance companies may insure them. It is not common. I have only heard of a number of them being done.

CHAIR: I think I have heard of it being done with stone fruits, where it is all or nothing when a hail event happens.

Mr NEUMANN: Under the code of practice the insurance companies can decline to give information, reports or other data to claimants. Are you aware of the insurance companies ever declining upon someone saying, 'Can I have a look at the hydrologist's report?' or 'Can I have a look at that information?' Are you aware of whether the insurance companies ever decline to give that information.

Mr Kelly : No.

CHAIR: Thank you very much for appearing before us.