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) In responding to this issue the insurance industry has argued that the provision of flood insurance relies largely on the availability of adequate flood mapping and other information to enable the underwriting of risks. In partnership with each of the State Governments, the general insurance industry has developed and licensed the National Flood Information Database (NFID). NFID is an address database containing property addresses, overlayed with the known flood risk according to Government flood mapping. NFID is used by insurers to determine the flood risk to individual properties. Presently, not every flood prone area in Australia is covered by the NFID. IAG welcomes the Government's announcement that it will provide a single access point to existing flood mapping data to be hosted by Geoscience Australia. IAG is an active participant in the general insurance industry's considerable work towards developing greater access to residential flood products for Australian communities. Through the ICA, the industry is developing a national flood mapping tool to support better understanding of the risks to the community. Cooperation and data sharing with government is essential to ensuring that the risks can be mapped and understood, and significant solutions are yet to be implemented. IAG contends that flood maps represent information that is of significant public interest and importance and that it would be inappropriate for governments to restrict in any way public access to flood map data. All parties with a legitimate interest in a property – including potential purchasers, tenants, residents, developers and insurers – should have access to up-to-date flood risk mapping data. This level of transparency is essential in reducing consumer confusion and encouraging people to take steps to manage their risk (such as understanding the flood risk of a property they are buying and purchasing appropriate insurance cover). A flood database would make decisions about mitigation measures, planning and building standards easier for local councils and ensure consumers were more aware of the likely impact of their geographical location on costs such as land value and insurance premiums. It would be inappropriate and impractical for insurers to take on the role of communicating this risk to the public, which is properly the domain of local government. Consumers should be made aware of flood risk when they are making a decision whether or not to purchase a property or to rent a property. This way a consumer is making an informed decision before they lock themselves into living or having a property in a flood risk area. Indeed, a common concern is that people have invested in a home unaware of the risks to their home and the associated financial consequences. As part of an IAG commissioned research report (Sapere Research Group – Australian Household Insurance: Understanding and Affordability to be published 2012) respondents were asked about the level of understanding of the risks prior to choosing to live in their current location. For all risks, between 12 and 14 percent of households disagreed or strongly disagreed that they had an understanding of the risks before choosing to live in their current location. In particular, over 20 percent of respondents who assessed themselves as relatively highly exposed to flood considered that they did not understand the risk prior to choosing to live in their location. 7 IAG SUBMISSION TO CONSULTATION PAPER - REFORMING FLOOD INSURANCE: A PROPOSAL TO IMPROVE AVAILABILITY AND TRANSPARENCY
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