Government Improves Transparency of Flood and Strata Title Insurance
The Minister for Financial Services today tabled the Gillard Government's response to the recommendations of the House of Representatives Standing Committee investigation into the operation of the insurance industry during disaster events and recent increases in residential strata title insurance premiums in North Queensland.
"The Government was deeply concerned by the unacceptable delays experienced by many consumers in having their flood claims processed by their insurer following the 2011 floods and by reports of declining availability and affordability of residential strata title insurance in North Queensland following Cyclone Yasi", Mr Shorten said
"I want to thank the Committee for agreeing to the Government's request to investigate these important matters and for developing a range of recommendations to address consumer concerns."
The Committee strongly supports the Government's decision to introduce a Key Facts Sheet and a standard definition of flood.
As part of the Gillard Government's continuing efforts to make flood insurance simpler and more effective the standard definition regulation was made on 14 June 2012 and the Key Fact Sheet regulations will be released for consultation shortly.[i]
The Government today announces that it will also publish a quarterly update of flood insurance take-up rates, disaggregated by state.[ii]
"The quarterly publication of the rate of flood insurance coverage is an important improvement in transparency," Mr Shorten said.
In relation to the residential strata title insurance, the Government agrees with the Committee that the underlying causes of the affordability and availability problems in North Queensland need to be identified before a course of action is determined.
The Government has called on the Australian Government Actuary to undertake a rigorous quantitative investigation of the causes of the recent premium increases. The insurance industry has agreed to provide the Australian Government Actuary with the data that it needs to undertake the analysis. The final report will be provided to the Government by 30 September 2012.
We also support the Committee's recommendation that the Queensland Government introduce a 12-month moratorium on stamp duty charged on strata title insurance in North Queensland.
Finally, a new toll-free 1300-53-10-73 inquiry number has been established by the National Insurance Broker's Association to assist in locating a broker. This will be supplemented by an enhanced web-site that will help put consumers in touch with insurance brokers who can address their needs. An insurance broker may be able to assist consumers to find insurance for flood coverage or strata title insurance that best suits their needs.
28 June 2012
[i]Key Fact Sheet
Prototypes of the Key Facts Sheet, which will provide a one-page summary of what is covered and what is not covered by home building and home contents policies, were recently consumer tested to ensure they fully meet the needs of consumers. Regulations will be released for consultation shortly.
The Key Facts Sheet addresses consumer confusion over what they are and are not covered for while introduction of the standard definition of flood resolves a problem that has been around for decades. We've got the insurers to agree on a definition, put it out for consultation, tested all the unintended consequences, we've passed a law and put the regulations in place.
The Government has also been working closely with the insurance industry on the Committee's recommendations for changes to the insurers' Code of Practice. The industry has implemented a number of the recommended changes, including an overall time limit on a decision being made on a claim and improved access to expert reports.
These will improve claims handling following natural disasters and prevent many of the problems consumers experienced following the 2011 floods from occurring in the future
The Government welcomes the Insurance Council of Australia's decision to commission an independent review of the Code, which will consider the remaining recommended changes.
[ii] Flood insurance - improved transparency of take-up rates
The Government recently undertook public consultations on a proposal to require all general insurers offering home and contents insurance to include flood cover in those insurance policies whilst giving the insurers the option of allowing consumers to opt out of purchasing flood cover. In its recently released draft report on barriers to effective climate change adaptation, the Productivity Commission noted this proposal and recommended that it should be implemented only once barriers to effective climate change adaptation in other policy areas are addressed. Given the potentially important role insurance can play in adaptation to climate change, the Government will defer consideration of this proposal until the Commission's final report has been received.
According to the Insurance Council of Australia, flood insurance has only been widely available since 2006 but the proportion of home insurance policies that include flood cover continues to increase. In 2006, 3 per cent of home and content policies purchased covered flood, in 2010, 54 per cent of policies purchased covered flood and at the end of 2011, 81 per cent of policies purchased included flood cover. Further, the Insurance Council assesses that in 2011, only 2 per cent of households elected to opt-out of flood cover when offered the choice to do so by an insurer.
From September, the Government will receive from the Insurance Council quarterly data - on a state by state basis - setting out the number of policies that include flood cover. This will include data on the number of policies that provide cover for flood and that give the consumer the option to opt out of purchasing flood cover. The data will be published as it is one of the many ways of reminding and prompting households to assess their risk and take appropriate action such as taking out flood insurance.