Australia Tackle Flood Insurance Problem
Australian Insurers Try to Get Handle on Flood Wording
Mar 27, 2009
With no proper flood maps or data available, providing flood insurance is a risky business, charge insurers in Australia. Eighty-five percent of Australians live near the coastline, with 60% living within 7km of it. The interior of the continent is uninhabitable desert.
Who "Owns" Flood Data?
Part of the problem dogging the debate in Australia has been an intellectual copyright issue: who would ultimately “own” the flood data if a collaborative effort between local and state governments was undertaken? Would it be the insurance industry, municipal governments, or state governments?
No answer is as yet forthcoming, but according to Dr George Walker, senior risk analyst with Aon Benfield Asia Pacific, up to 1974, the insurance industry in Australia readily provided flood insurance. That changed when a massive flood occurred after a cyclone in the city of Brisbane, in the state of Queensland. The total damage in 1974 dollars was A$180 million ($150 million), with an insured loss of A$68million ($56 million). Dr Walker described the Brisbane flood as a “wakeup call” for the insurance industry which was already reeling from two other major cyclones in the early 1970s. The cumulative effect of the disasters suggested that the industry’s “previous perceptions of hazard risk were wrong".
Dr Walker estimated that the combined insured losses from the three cyclones would be “well over A$1 billion in today’s dollars”. The industry therefore pulled out from offering flood cover. Flood damage arising from overflowing of streams and rivers was considered to be uninsurable.
A major tropical cyclone, Cyclone Larry struck in North Queensland in February 2006. It leveled towns and destroyed banana and avocado plantations. The insured damage was about A$350 million ($289 million) and the insurance industry paid out on flood claims even when policyholders were not insured.
Later that year, the Insurance Council of Australia voiced its commitment to working with state and Federal Governments to address the issues of flood mitigation and management in Australia. It said in a statement that “flood remains a significant community issue which is likely to worsen, if climate change predictions hold true”.
Insurers Try to Develop Minimum Standard for Policy Wording
The general insurance industry also announced in 2006 that it would develop a minimum standard definition of “inland flood” or overland flood as it is known in Canada. The proposed definition was rejected by the Australian Competition and Consumer Commission as “anti-competitive” in September 2008.
As a result of political pressure, and increasing media scrutiny, the insurance industry is now offering flood cover as an optional extra for homeowners’ policies. However, the vexed problem of confusing definitions remain. (The Insurance Ombudsman’s office had pronounced industry flood definitions to be “clear as mud”, at a conference in September 2007.)
Some Flood Cover Now Available
Consumers now have to research the various types of flood cover, without having a benchmark definition to compare products with. Still, there is already a trend towards increasing availability of flood cover, with 8% of policies offering flood coverage in 2006, compared to 32% at the present time.
The Insurance Council of Australia and the Federal Government have also formed the National Flood Risk Advisory Group (NFRAG) operating under the Council of Australian Governments (COAG), which is an umbrella body bringing the various state governments together.
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