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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) THE STORM/FLOOD DISTINCTION There are two aspects to this distinction. These are: Whether the customer will understand the distinction Having a standard definition of flood across home and contents policies offered by insurers will make it easier for customers to understand the distinction. However while the flood definition should be standard across relevant policies IAG is concerned that section 37D of the Insurance Contracts Amendment Bill 2011 may limit the capacity of insurers to offer water damage cover where flood is excluded. This is because the effect of sections 37D(1),(2) and (3) is to deem the insurer to have offered flood cover as defined by the Regulations if one aspect of their storm cover is captured by that definition. It is submitted an insurer should be able to offer cover under storm without fear that by doing so it will be forced to cover everything under the flood definition. If this issue is not resolved insurers will likely draft their storm damage event cover very narrowly to prevent them being captured by section 37D. This in turn will lead to less water damage cover to a customer. How does one determine whether storm or flood caused the damage where this is not clear on its face When flood is excluded from a policy but storm water run off is not it can sometimes be necessary to obtain expert evidence as to the source of the water that caused damage. Such expert evidence is usually in the form of a hydrologists' report. Depending on the circumstances it may be necessary for hydrologists to attend individual properties to determine the source of damage. There is a limited supply of hydrologists and therefore reports can take time to obtain. There is no easy solution to this issue. However, one of the amendments to the General Insurance Code of Practice to require insurers to ask experts to provide reports within a specific time timeframe and to require the insurer to keep the customer informed as to the progress in obtaining the report as a positive development. Further moving forward adequate government involvement in mitigation strategies aimed at limiting the impact of flood in high risk areas and the availability of adequate flood mapping should assist in reducing those customers exposed to flood. If this occurs the storm/flood distinction should become less of an issue. INSURANCE CONTRACTS ACT Whether an insurer will be compelled to offer flood cover as defined by the Regulations but with a choice to give customers a right to opt out is relevant to the position insurers may take in respect of various provisions of both the Insurance Contracts Amendment Bill 2011 and the associated Regulations. Therefore the Bill and Regulations and Consultation Paper should be considered as one parcel. IAG supports the Insurance Council of Australia submissions in relation to the Insurance Contracts Amendment Act and Regulations. DATA REQUIREMENTS The challenge for insurers in providing cover to date has been a lack of data and lack of consistency in that data. 6 IAG SUBMISSION TO CONSULTATION PAPER - REFORMING FLOOD INSURANCE: A PROPOSAL TO IMPROVE AVAILABILITY AND TRANSPARENCY