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Labor's plan for improving flood insurance.

Labor's Plan For Improving Flood Insurance

 

Kim Beazley, Leader of the Opposition, and Kelvin Thomson, Shadow Assistant Treasurer

 

Joint Media Statement - 13 February 2001

 

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• "A group of angry residents formed SWAG. They ran a high-pressure campaign in the national media, demonstrating at the ASX building and at the NRMA AGM. Their actions eventually caused some major insurance companies to buckle and make ex-gratia payments to their Wollongong policy holders. However, the companies that made ex-gratia payments did not admit their liability."  
Jackie Lacey, 'Consuming Interest' Winter 1999

 

Claiming on insurance should not result in consumers having to engage in protests to get what is rightfully theirs. Insurance should be about fairness and transparency. Labor knows that this is not achieved as simply as the Howard Government thinks it is.

 

Government has a role in the insurance industry. It cannot simply vacate the field and expect competition to deliver fairness and equity to consumers as the Howard Government has done. Labor believes that Government has a role in:

 

• Providing the overarching legislative framework for the operation of the industry;

• Providing the appropriate prudential framework;

• Intervening when the market fails to deliver fair and transparent outcomes for consumers.

 

The greatest need for this currently exists in the area of insurance for water damage.

 

The Failure of the Howard Government

 

Mr Howard has consistently refused to listen to community demands to hold an inquiry into this issue. Most recently he refused to hold an inquiry into the issue following the New England floods.

 

The Howard Government believes that the market will solve the problem. Minister Joe Hockey said in 1999:

 

• "The initiatives (NRMA offering flood coverage) here come about because of competition in the marketplace; they do not come about because of any detailed prescription from the federal government or state governments forcing insurers to take uncommercial decisions. The best pressure that comes about is because of competition."  
The Hon Joe Hockey, Minister for Financial Services and Regulation

 

Labor knows that this is not achieved as simply as the Government thinks it is. Did competition help the people in Lismore?

 

Following the 1998 Wollongong floods the Hon Stephen Martin MP called for an inquiry into the insurance industry. This motion received bi-partisan support but was rejected by the Prime Minister. This smacks of a lack of interest.

 

• "The issue of flood insurance is a complex matter, the solution for which does solely rest with the insurance industry." 
Prime Minister to Stephen Martin MP, 29/3/99

 

The Prime Minister stated that the Insurance Council of Australia was working on this issue and that alleviated the need for a parliamentary review. It is not sufficient for Government to turn over an area to the peak body that represents the industry.

 

In June 2000 the Australian Securities and Investments Commission released a report on Flood Insurance that covered a number of the problems that exist in the industry.

 

Some of the findings were:

 

• Sales representatives are often not trained to provide adequate explanation of the operation of flood cover;

• There is a lack of understanding by consumers of what their actual policies cover;

• The process for resolution is often cumbersome and disempowering. [*]

 

This is consistent with the anecdotal experience of residents who were affected by the floods and would have provided a good starting point for the Government to work with the Insurance companies and State and Local Governments to provide more transparent flood insurance for consumers.

 

Labor's Initiatives

 

Improving flood insurance requires the Federal Government to work with the industry, and with State and Local Government.

 

Public availability of 1 in 100 year flood maps

 

Labor will work with State and Local Governments to ensure that maps showing the areas that are subject to 1 in 100 year floods are produced and published.

 

The insurance industry believes that companies can provide coverage for floods, if they are able to establish the risk. This relies upon accurate information.

 

• "While nearly six in 10 councils that collect flood data reported that they consolidated this information into their planning schemes, only 46% of metropolitan councils have done so." 
Insurance Council of Australia

 

This lack of information makes it difficult to establish risk and therefore provide coverage.

 

Rather than the current haphazard coverage Labor will work with State and Local Governments to ensure that maps showing the areas that are subject to 1 in 100 year floods are made and published. In this way property owners and prospective owners, and insurers will be better informed of flooding risks.

 

A Parliamentary Inquiry into Flood Insurance

 

Labor will establish a Parliamentary Inquiry into the issue of flood insurance.

 

The Parliament of Australia needs to be involved in the flood insurance issue. The public needs to have the opportunity to explain its problems and experiences. The requests of the NSW Premier and other members of the community to establish an Insurance Industry Ombudsman need to be assessed.

 

Labor will examine the operation of the Insurance Contracts Act 1984 in relation to flood insurance and consumer protection. The terms of reference for such an inquiry would include:

 

1. Examining the operation of the Insurance Contracts Act 1984, with particular attention to the use of standard cover and exclusions that relate to water damage;

 

2. Examining the outcomes from areas affected by flooding, including Katherine, Coffs Harbour, Townsville, Wollongong and New England, and suggesting remedies;

 

3. Examining the calls for an Insurance Industry Ombudsman.

 

Improve Consumer understanding of Flood Insurance

 

Labor will work with the insurance companies to implement recommendations of the Australian Securities and Investment Commission Report into Flood Insurance.

 

The ASIC report into the problems of flood insurance also highlighted problems, not only in the lack of coverage, but also in the lack understanding by consumers into how insurance worked, what they were covered for and issues concerning how companies sell their product and deal with consumers.

 

The ASIC report presented a number of recommendations. [*]

 

Labor will work with the insurance companies to see the following implemented:

 

• Improved information to be available to consumers about the various aspects of flood cover;

• When a claim is lodged for flood damage insurers need to clearly explain how and when it will be decided and what representation the claimant needs;

• Insurers should prompt consumers about the need for flood insurance;

• The standard use of key common terms for policies should be explored;

• The distinction between flood, storm and rainwater needs to be clear and concise;

• The distinction between the 'all in cover' and 'defined event' coverage should be clearer;

• The concept of 'proximate damage' needs to be clear and understood;

• Information about cover for flood should be given at renewal time;

• The availability of 'flood insurance' as an add on to policies is haphazard and needs to be improved;

• The understanding of the concept 'standard cover' needs to be better understood and

• The practice of the phone sale of insurance policies needs to be examined to ensure that policy holders fully understands what he or she has purchased.

 

(*) Flood Insurance, ASIC, 6 June 2000

 

Authorised by Geoff Walsh, 19 National Circuit, Barton ACT 2600.