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IAG'S SUBMISSION TO TREASURY CONSULTATION PAPER
IAG's submission to Treasury Consultation Paper regarding the Federal Government's proposal that would require insurers to offer flood cover in all home building and home contents policies.
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GOVERNMENT'S PROPOSAL (CONTINUED) NSW VIC QLD WA SA TAS NT ACT Direct Opt out+ No opt No opt No opt No opt Opt out+ No opt Opt out+ insurance out out out out out Intermediated No opt No opt No opt No opt No opt No opt No opt No opt out out out out out out out out Buzz Opt in Opt in Opt in Opt in Opt in Opt in Opt in Opt in Insurance* + Customers can choose to remove flood cover if we have identified their home is prone to flooding. * The customer can only take out Home Insurance on-line. The customer has a choice of Base Cover, Central Cover or Buzz Plus cover. The Base Cover does not include a flood option. The Central Cover includes a 30% of sum insured flood option. The Buzz Plus Cover includes 100% flood option. The decision by IAG's operating businesses to offer flood insurance as a standard inclusion in their home and contents policies is twofold. It addresses the community's feedback that it wants greater clarity around insurance for different types of water damage. It is also based on our experience in NSW. In that State NRMA Insurance provides flood cover automatically to 98% of its customers. The remaining 2% of customers in high risk areas have the ability to “op- out” of flood cover. Flood cover as a standard inclusion will provide all our customers with absolute certainty and confidence that they are covered for both stormwater and flood damage. The best way to make sure our customers have protection and to maximise the number of people covered is to automatically include flood cover in the premium. IAG notes the views of consumers outlined in the Paper commissioned by Treasury – A Consumer Perspective on the NDIR Paper (September 2011): “… consumer representatives believe that automatic flood cover (with no opt out) will deliver the best outcomes for consumers” ( p.5) IAG believes customers should have the opportunity to choose the type of insurance cover that suits their individual needs. INDUSTRY CAPACITY TO UNDERWRITE FLOOD IAG believes insurers should have flexibility. Forcing insurers to offer flood cover or “opt-out” flood cover would be potentially damaging if flood products were beyond a particular insurers' risk appetite. This may actually work to reduce competition in the insurance market. IAG notes the Consultation Paper statement that “requiring all insurers to offer flood cover may result in some companies defensively pricing flood cover or simply ‘redlining' flood prone areas. This could have a negative impact on competition in the insurance market, at least in areas exposed to flood risk” (p.10) 5 IAG SUBMISSION TO CONSULTATION PAPER - REFORMING FLOOD INSURANCE: A PROPOSAL TO IMPROVE AVAILABILITY AND TRANSPARENCY