ROSS GREENWOOD:
Yeah, welcome back to Money News. Just a few bits and pieces I want to touch on now. Following the 2010 and '11 floods, you'd be well aware that the Federal Government said that it wanted to make changes to the Insurance Act to try and help to protect all households that could be affected by flood.
Now, the situation after the Queensland floods, and particularly Brisbane when the Wivenhoe Dam was let go, was that, you know, the interpretation of flood was a many and varied thing. Some people thought that they had been flooded in the traditional way, and yet when they came down the argument about whether they had been inundated, flooded, whether the water had come up or gone down, caused enormous nightmares, and one of the things that the Government did, and it seemed so sensible, was to get a standard definition of flood in every policy.
Now, this is something which they've created an amendment to the Insurance Act of over the past few months and years - couple of years. And, in fact, the interesting part about this is it was only in the last six months or so where they've actually got that, if you like, inscribed into law. Now, since then you've had a range of insurance companies come out and create compulsory household insurance, so what happens is that they get their flood maps out and they say, right, you're in a flood-prone zone. Yes, everybody's got flood insurance, but if you're not in a flood zone you've got lesser insurance. If you're in a flood-prone area your insurance is greater.
Now, as many people will understand - and this is why I want your calls, because we'll take these a little later on. And that is that some people found that their insurance policies, and particularly in flood-prone areas, could've tripled or quadrupled. And, you know, that was a real drama. And so now the question is whether, in fact, the amendments that have been made to the Insurance Act by the Government have worked in the way in which the Government intended them to.
Now, the Financial Services Minister Bill Shorten was the architect of many of those changes and, as I say, the changes seemed to make absolute common sense to everybody. But the question about how the insurance industry has interpreted them and how the community has behaved, that's a totally different thing.
Bill Shorten's on the line right now. Many thanks for your time, Bill.
BILL SHORTEN:
Yes, good evening, happy new year, happy Australia Day.
ROSS GREENWOOD:
Yeah, well, it's no... for a lot of those people now affected by flood it's pretty tough for them, I understand. Just one thing, you will be getting feedback now from many financial services companies that fall under your - I know the insurance companies will be working very hard trying to get people on the ground in some of these flood-affected areas. I know also the banks - I've seen statements from Westpac and the ANZ saying they're putting in place disaster relief packages for their customers in those areas. So the financial services industry is pretty important for them to get moving very quickly at this time, isn't it?
BILL SHORTEN:
Yes Ross. First of all, my thoughts go out to anyone who's experiencing the difficulties with the flood. In terms of what is happening, though, I'm going to actually just take a risk and say something which will no doubt upset people, some people. But I think this is going to be better handled than 2011. First of all, thankfully, in most places the scale of the floods is not what is was in 2011, although in Bundaberg I think the flooding is worse. What I also understand to be the case, of course, is that we haven't seen the full extent of any flooding from the Lockyer Valley coming down - the Lockyer region coming down through Ipswich, and the Bremer River to Brisbane itself, but with those caveats - sorry Ross, I've just got a little one who's...
ROSS GREENWOOD:
Don't worry, those things are always... also important as well.
BILL SHORTEN:
They are.
ROSS GREENWOOD:
I'll let you sort that out first.
BILL SHORTEN:
Having said that, the caveat is that we haven't actually seen the full effect. I don't think the cost is going to be the same, and one of the reasons the cost won't be the same is that we have a standard definition of flood. In 2006 only three or four per cent of policy holders had flood insurance. Because of all the arguments, debates, and indeed eventually positive change from the industry, 81 per cent of people have flood insurance now. Now, again, that mightn't be in the most flood-prone areas. It's an average, but there's a much greater coverage against flood, and we have one definition across all policies now.
ROSS GREENWOOD:
Because, just going through, if we take through the companies that, you know, have got that now. RACQ, NRMA, we've got CGU that's got it, SunCorp has certainly got it, RACV in Victoria has got it.
BILL SHORTEN:
Yep.
ROSS GREENWOOD:
The one exception of the big four insurance companies in Australia, the one exception to it right now in Allianz. Now, they have effectively, because the Government also pushed the industry in this way, they have an opt-out. And so as a result, if I was insured through Allianz, say, for example, I could opt out of having that flood cover and take the risk myself.
Now, the interesting part about that is that Allianz now is considering going the way of the rest of the industry and having, if you like, the compulsory insurance. The question is whether those people have seen - who are in the flood-prone areas, have seen their premiums rise through the roof, whether they will try and accept the risk themselves because of course, as you know, in some cases the insurance premiums can be 20 and even $30,000 for that house.
BILL SHORTEN:
Well I can't...
ROSS GREENWOOD:
It can be prohibitive.
BILL SHORTEN:
I've really thought about this very carefully. First of all, I was surprised, and I'd just become the new Insurance Minister at the end of 2010. So mid-Jan, December January, prior to 2011, I hadn't realised that there was going to be such a complex, nasty argument about different companies having different meanings for what a flood is.
Most people say that when the water's coming over the first floor into the garden, it's a flood. Whereas the industry used to have debates about did the storm happen upriver, was it storm-related? You know, there was all sorts. Was it an overflowing river or was it downpour? And we saw a technical situation, particularly really important Australian centres like Ipswich that people on the same street, different companies were getting - who both thought they had insurance, getting different outcomes. It was terrible. But the industry agreed it was time to act, so we've got a definition of a flood which is in 41 words.
Now, then the issue comes - there's two issues with flood insurance. One is, do I have it and does it mean the same thing wherever I go? The second thing is how much it costs. Government can try and fix the first one, very strongly, and we have. We actually have. It'll never get a Golden Globe award, but we've got a common definition of flood, and the industry now accepts that. We also got some other changes with industry, key facts statements. So you can look at, you know, insurance and you're just on one page you can see what you've got, you don't have to read 20 pages of fine print. The other thing is we've got the industry collaboratively to change their industry code of conduct, so they speed up matters dealing with them because quite often it comes down to a hydrologist's report, what happened.
So we've done all that, but the issue which we haven't fixed conclusively is the cost. Problem is if you live in a highly flood-prone area, the insurers and their underwriters are overseas. They say, well, if you keep flooding you have to pay more for your insurance. So then the question becomes, can you make people take thousands of dollars of policy, which is the risk assessment, or not. So I can understand why there's an opt-out provision.
ROSS GREENWOOD:
And I'll give you an example of this, Bill, because let's say, for example, and we'll speak to them a little bit later in the program, but I've spoken to some people today who were flooded in 2010, '11, and they're from Goodna, not too far away from Ipswich, near the Brisbane River. And their house, right, flooded, were literally wiped out. And so the suggestion was once in 100 years. They basically didn't really have that much insurance at the time, the community supported them, the Government supported them, which, you know, was a great thing. So they've gone and rebuilt their house.
Now, tonight they've had to evacuate their house. They expect if the river goes to 10 metres they'll be basically up it the floor - up to the floorboards again. Here's the situation. They cannot get that house covered, and they've spent $250,000 rebuilding it out of their own resources and the Government's resources and their friends' resources to get themselves back into their home, and right now they're sitting there with no insurance, basically uninsurable because they've had this flood go through them. And the question is, you wonder, a) does the community carry the burden again? B) do you never ever build in that spot again? It's these big questions, and that's one incident of what will be many thousands of incidents of a similar situation.
BILL SHORTEN:
Well hopefully it's not many thousands, yes that situation happened. It's also one I encountered when I was working on bushfire reconstruction...
ROSS GREENWOOD:
Yeah.
BILL SHORTEN:
...but you live in an area which is basically right in the middle of a forest; it is hard to get insurance. I don't think there's a simple answer. I don't want to stop people living where they want to live. On the other hand, do you ask every other taxpayer to subsidise people's lifestyle choices? I think that's really hard. Or thirdly, do you then have some system of insurance where you can get it, but it's a prohibitive cost?
This is the dilemma about living in some areas which are highly risky. I mean, do you stop people living there altogether? Or do you say, okay, but you need to be aware of the risks of where you build and live.
ROSS GREENWOOD:
It's a very tough thing for a Government to come to, because ultimately the Government and the community support people, look after people, are generous to people, all that type of thing. But the question is at what point, because last thing that your Government would want right now, I would imagine, would be to put in place another flood levy to try and help...
BILL SHORTEN:
Yeah. I...
ROSS GREENWOOD:
...all of these victims out?
BILL SHORTEN:
I think it gets difficult because I can understand people wanting to live in Australia - It's a remarkable country. Also some people don't have a lot of money so some land is cheaper than others. So whether it is you're attracted to nature's beauty, or whether it is your family who have lived in a place for a very long time or whether it is that councils when they were issuing parcels of land let people buy in these areas and it turns out they were more risky than initial thought, there's plenty of factors.
What we can do is, as we've done in floods, make it one definition. What we can do is improve technology and warning systems as we've done with bushfires in the time of this Government. What we can do is build up a national library of flood information which we've done. We're spending $12 million, it's started, so people can find out what is the real risk. They can go into a situation with their eyes open.
ROSS GREENWOOD:
But would you rule out creating some form of national pool to make certain that all of these people might in some way, shape or form be covered?
BILL SHORTEN:
Yeah but I think taxpayers will ask the question - it's an idea. It is an idea and I can see why some people would push that idea. But I also get push-back when I've discussed this from people who live in areas that'll never flood, never ever, ever flood and say listen, we mightn't have the view right next to the river, but - and I'm not talking about this couple you're talking about...
ROSS GREENWOOD:
Yeah.
BILL SHORTEN:
...but I'm just generalising. Why would everyone else who live on mountains or live in areas which don't have a particular water view with a history of flooding, why should we pay for these people to live there?
ROSS GREENWOOD:
Totally. And I'll get a board full of calls about exactly that. That's an...
BILL SHORTEN:
So...
ROSS GREENWOOD:
...interesting dilemma but it's one still that the Government's got to send a very clear message about Bill Shorten because...
BILL SHORTEN:
Well what I've got to try and do - and what we have to try and do is make sure that insurance companies aren't charging any more than they should. But I'm not a communist or a fascist and I'm not going to just say to an insurance company you must charge some massive loss-making price just because you should.
So it isn't simple, I hope by my answer I'm showing you that when we think about - I mean, one of the challenges of course is better flood mitigation; spending money on infrastructure which mitigates against floods...
ROSS GREENWOOD:
Yep.
BILL SHORTEN:
One thing we can try and do is also - when councils are parcelling out land in the future - I mean, we've got current people already living where they currently do, but in the future if you know somewhere is a flood-prone just think twice before councils just re-zone it.
ROSS GREENWOOD:
Bill I got to keep on moving. I appreciate your time. The Financial Services Minister on a very important evening and a very important subject.