Australia: Inundated with articles about flood insurance? Here are the key points.

Focus: We extract the key points from the National Disaster Insurance Review.
Services: Insurance
Industry Focus: Insurance

Thanks to a wetter than usual outlook for eastern and western Australia, there may be precious few beach days for you to enjoy this summer. Don't waste them by spending time poring over stacks of articles on flood insurance! In this article, you will find all the key points you need to know about the Natural Disaster Insurance Review and proposed changes to flood insurance.

What have I missed?

January 2011

  • devastating floods occur in Queensland, NSW and Victoria (starting in December 2010)
  • Federal Government meets with insurance industry
  • Federal Government goes on to announce that not all insurance policies will cover loss from floods
  • Queensland Premier establishes Queensland Floods Commission of Inquiry (Floods Commission).

February 2011

  • Severe Tropical Cyclone Yasi crosses north coast of Queensland
  • Federal Government holds further meetings with insurance industry
  • Federal Government goes on to announce that insurers have agreed to pursue a standard definition of 'flood' and to improve drafting of policies. Discusses a national flood-mapping database.

From this point things get complicated, with inquiries occurring on several fronts at once:

Federal Government The Review Parliamentary Committee Floods Commission
March 2011 Announces the Natural Disaster Insurance Review (the Review) Holds community meetings in flood-affected areas.
April to May 2011 Consults on a standard definition of 'flood' and a key facts statement.Agrees to work with insurers on national flood-mapping and claims handling time frames. Holds first round of hearings in affected communities.
June to July 2011 Asks House Standing Committee on Social Policy and Legal Affairs to report on insurers' claims handling in response to extreme weather events.

Consults on proposals for:

  • automatic flood cover (with or without opt-out), and
  • premium funding for high risk homes
Calls for submissions from anyone who has made a disaster-related claim in the past five years.
August 2011 Begins public hearings in flood-affected communities. Releases interim report. Makes recommendations relating to dam operations, disaster planning, forecasting and emergency response.
September 2011 Delivers its Final Report to the Government. Makes 47 recommendations. Begins second round of hearings with focus on land use planning and the performance of private insurers in meeting their claims responsibilities.
November 2011 Releases the Final Report of the Review. Responds to the recommendations. Consults on the proposal for compulsory offers of flood insurance on opt-out basis. Introduces legislation to give effect to a standard 'flood' definition and refers it to the House Standing Committee on Economics. Concludes public hearings. Asked to inquire into affordability of residential strata title insurance, especially across northern Australia. Concludes second round of hearings.
December 2011 Releases draft regulations for a standard definition of 'flood' for home building, home contents, small business and residential strata title insurance.

Do we now have recommendations from all these inquiries?

No. We have the recommendations of the Review, but we still await any recommendations that the Parliamentary Committee or the Floods Commission may make in relation to flood insurance and related matters.

What did the Review recommend?

With the goal of making flood insurance ubiquitous and affordable, the Review made four 'pivotal' recommendations and a total of 47 recommendations, all of which are intended to support these five essential requirements of its integrated solution:

  • all home building, home contents and residential strata title insurance policies need to include flood cover
  • discounted premiums are needed for insurance covering medium and high flood risk properties
  • a mechanism is needed to fund these premium discounts
  • insurers need support from a government-backed reinsurance facility to provide these discounts, and
  • there needs to be national coordination of flood risk measurement and mitigation.

How many of the Review's 47 recommendations has the Federal Government agreed to implement?


I'm sorry, how many?


What are they?

  • that home building and home contents insurance not be made compulsory, and
  • the introduction of a standard definition of 'flood'.

But one of those requires no action and the other one was announced in February, before the Review was established.


Has the Federal Government promised to implement any other action?

Yes. It will:

  • fund a flood risk information portal for all existing flood risk information, and
  • require a key facts sheet for all home and contents policies.

It will also consult with stakeholders in relation to the remaining 45 recommendations of the Review.

When are we likely to see some positive steps being taken?

Not for some time. There is still a lot of consulting to be done.

Even the recently released draft regulations giving effect to a standard definition of 'flood' are not intended to take effect until two years after they are made.

In the meantime, here are the key dates in 2012 by which consultation is to be completed:

  • 13 January 2012: Last date for submissions to the House Standing Committee on Economics on amendments to the Insurance Contracts Act 1984 giving effect to the standard definition of 'flood'
  • 16 January 2012: Last date for submissions to House Standing Committee on Social Policy and Legal Affairs on residential strata title insurance (public hearings are also being held in Cairns in January 2012)
  • 3 February 2012: Last date for submissions to The Treasury in relation to the proposed standard definition of 'flood'
  • 8 February 2012: House Standing Committee on Economics to report on amendments to the Insurance Contracts Act 1984 giving effect to the standard definition of 'flood'
  • 24 February 2012: Date by which the final report of Floods Commission is due to be presented to the Queensland Premier
  • 28 February 2012: Date by which the Federal Government has asked the lending and insurance industries to respond to some of the recommendations of the Review, for further consideration
  • 30 March 2012: Last date for submissions to The Treasury on proposal for mandatory offers of flood cover on an opt-out basis, and
  • Later in 2012: An issues paper will be released by the Federal Government inviting submissions on how to make flood insurance affordable.

Once all this consultation is complete, the Federal Government will hopefully give a firmer indication of whether and when it intends to implement any other recommendations made by the Review. It would be optimistic to expect any such steps to be confirmed in the first half of 2012.

In the meantime, property owners and insurers alike will no doubt be keeping a keen eye on the weather forecasts and hoping that the disastrous events of 12 months ago are not repeated.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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