People should know exactly what is, and what is not, covered under their insurance policies, according to a new consultation paper announced today at a public meeting in Ipswich by Assistant Treasurer Bill Shorten.
"It seems like a simple proposition. If you have an insurance policy, you should be able to tell, at a glance, what that insurance policy covers you for. And yet, as we've seen all too often after the recent floods, that simply isn't the case for many Australians," Mr Shorten said.
"The time has come for the insurance industry to meet their customers half way. A single, standard definition for floods, across the entire country, across every insurance company is the best way forward."
The standard definition has been designed by the Government, in close consultation with the Insurance Council of Australia and consumer groups.
The proposed standard definition is:
'Flood' means the covering of normally dry land by water that has escaped or been released from the normal confines of:
(a) any lake, or any river, creek or other natural watercourse, whether or not altered or modified; or
(b) any reservoir, canal or dam.
Stormwater runoff is typically included in standard cover for home and contents policies. Mr Shorten emphasised this will remain the case.
The paper was released at a public meeting held today with flood victims in Ipswich, Queensland. The paper has two proposals:
- A standard definition of flood for inclusion in insurance policies
- A short 'key facts' statement that summarises the contents of insurance policies.
"Variations of the term 'flood' and 'flooding' in insurance policies are confusing. Currently, a policy may use terms like 'accidental flood' or 'flash flooding', to describe what is covered, but still exclude cover where a flood is caused by a river bursting its banks."
"In future, if the term 'flood' is standardised across insurance policies and defined in plain English terms, they will be more easily understood up-front, so consumers aren't surprised when they try to make a claim."
"Under the proposal, the term 'flood' can only appear in an insurance policy if it covers the standard meaning of the term," he said.
The purpose of the single page key facts statement is to allow consumers to see at a glance, the key elements of the policy – what is covered and what is not. This will help in the understanding of what policies cover and allow people to shop around much more easily.
Those proposals will be subject to public consultation so the details can be refined. It is expected they will be considered for inclusion in legislative changes introduced later this year. The Government welcomes submissions on the paper, which is available from the Treasury website. Submissions close on 13 May 2011.
The standard definition and key facts statement are important steps forward but they do not provide a solution to all of the issues surrounding natural disaster insurance in Australia.
The paper also includes information on other initiatives including:
- Flood mapping
- A limit on the time for claims handling
- A Centrepay facility for payment of insurance premiums.
"All of these issues, and other natural disaster questions are being examined by the Natural Disasters Insurance Review, which is due to report back to the Government by 30 September this year.
"This is an inquiry into the availability and affordability of insurance for flood and other natural disasters."
"These changes will help make sure this kind of unnecessary confusion and heartache about insurance policies doesn't occur following the next natural disaster," Mr Shorten said.