(764915827) 72665617 Natural Disaster Insurance Review

8/19/2019 (764915827) 72665617 Natural Disaster Insurance Review

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30 September 2011

The Hon BillShorten MP

Assistant TreasurerParliament HouseCANBERRA ACT2600

ear Assistant Treasurer

!e are please" to present our report on the Natural isaster #nsuran$e Re%ie&'

The Re%ie& has attra$te" &i"e publi$ interest( e%i"en$e" b) o%er 100 &rittensubmissions an" $onsi"erable publi$ "ebate amon*st e+perts an" otherintereste" parties' The Re%ie& Panel has also un"erta,en man) sta,ehol"ermeetin*s( &ith representati%es o- all le%els o- *o%ernment( insurers( $onsumer*roups( h)"rolo*i$al e+perts an" others( an" ma"e numerous publi$ spee$hesan" presentations to "i%erse au"ien$es -ollo&in* publi$ation o- our #ssues Paperon 2 .une 2011'

The Re%ie& Panel &ants to e+press its *ratitu"e to the man) in"i%i"uals an"or*anisations that ha%e $ontribute" to the &or, o- the Panel'

/ur ,e) re$ommen"ation is to establish an A*en$) that &ill( -or the rst time(brin* to*ether -loo" ris, mana*ement an" insuran$e in a manner "esi*ne" toensure the a%ailabilit) an" aor"abilit) o- oo" insuran$e to all insure"Australians'

!e $ommen" the Report

to )ou' ours sin$erel)

.ohn Tro&bri"*ePanel Chairman

.im MintoPanel Member

.ohn BerrillPanel Member

Natural isaster #nsuran$e Re%ie&C45 The Treasur)an*ton Cres$ent( PAR7ES ACT 2600 Australia


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Phone 02 62633380 & & & 'n" ir'*o % 'a u

http://www.ndir.gov.au/http://www.ndir.gov.au/http://www.ndir.gov.au/http://www.ndir.gov.au/


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TERMS OF REFERENCE

#ssue" b) the Hon Bill Shorten( Assistant Treasurer( on 8 Mar$h 2011'

BACKGROUND

1 Re$ent &i"esprea" -loo"in* an" other e+treme &eather e%ents ha%e $ause""e%astatin* losses a$ross the nation' These losses ha%e been borne b)in"i%i"uals an" businesses( State an" lo$al 9o%ernment( $ommunit)or*anisations( the Australian 9o%ernment( pri%ate insurers( an" reinsurers'

2 The Australian 9o%ernment see,s to ensure that:

(a) #n"i%i"uals an" $ommunities ae$te" b) the -loo"s an" other

natural "isasters are able to re$o%er an" rebuil" as ;ui$,l) aspossible'

(b) People are able to $hoose &here the) li%e in an in-orme" &a)'

(c) #n"i%i"uals an" $ommunities at ris, o- -uture -loo"in* or othere+treme &eather e%ents are a&are o- the ris,s but are able to obtainsuitable prote$tion a*ainst those ris,s( both in terms o- ha%in*a$$ess to insuran$e an" benetin* -rom appropriate miti*ationstrate*ies'

3 The Australian 9o%ernment is $on$erne" to ensure that the appropriate

national measures are in pla$e to -oster more $omplete sharin* o- ris, an"e;uitable sharin* o- the $ost o- "ama*e an" loss resultin* -rom oo"s an"other natural "isasters throu*hout the nation' This Re%ie& is establishe" toe+amine ho& best to a$hie%e these ob As part o- the National Strate*)( the Common&ealth( States an" Territories &ill be &or,in* to*ether to support strate*ies to -oster *reaterin"i%i"ual an" $ommunit) resilien$e( in$lu"in* ha%in* a"e;uate an"

appropriate le%els o- insuran$e $o%er( an" the Hea"s o- Treasuries &illpro%i"e a report to the National Emer*en$) Mana*ement Committee ?NEMC@on insuran$e b) the en" o- 2011'

6 This Re%ie& pro%i"es an opportunit) -or an in"epen"ent re%ie& o- issuesrelatin* to insuran$e in li*ht o- the re$ent "isasters( in the $onte+t o- thelon* term -un"in* o- "isaster relie-' The Assistant Treasurer an" theAttorne)59eneral &ill pro%i"e the out$ome o- the Re%ie& to the Hea"s o- Treasuries -or $onsi"eration in the $onte+t o- their report to the NEMC'

OBJECTIVE AND SCOPE

The Re%ie& shoul" be *ui"e" b) the -ollo&in* prin$iples:


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Terms o-

(a) 9o%ernment inter%ention in pri%ate insuran$e mar,ets is


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Terms o-

support the rebuil"in* o- publi$ in-rastru$ture in the a-termath o- e%entssu$h as the re$ent -loo"s'


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Terms o-

COMPOSITION AND CONSULTATION

10 The Re%ie& Panel &ill be $haire" b) Mr .ohn Tro&bri"*e( &ith Mr .ohnBerrill an" Mr .im

Minto as members'

(a) The Re%ie& Panel &ill be assiste" b) the Australian 9o%ernmentA$tuar)( Mr Peter

Martin'

(b) The Re%ie& Panel &ill be supporte" b) a &or,in* *roup -rom&ithin the Treasur)( &ith representation -rom the epartment o- =inan$e an" ere*ulation an" the Attorne) 9enerals epartment(an" "ra&in* on other *o%ernment a*en$ies as appropriate'

(c) The Chair ma) tas, members o- the Re%ie& Panel to o%erseepro*rams o- &or, relate" to their -iel" o- e+pertise'

(d) The Re%ie& Panel &ill $onsult &ith the publi$ to allo& -or$ommunit) an" business input'

(e) The Re%ie& Panel &ill $onsult &ith State an" Territor) *o%ernments'

(f) The Re%ie& Panel &ill also( &here ne$essar)( "ra& one+ternal e+pertise an" $omparati%e international best pra$ti$e'

(g) The Re%ie& Panel shoul" pro%i"e a nal report settin* out itsre$ommen"ations to the Assistant Treasurer b) no later than 30

September 2011'

(h) The nal report &ill also be pro%i"e" to the Common&ealthAttorne)59eneral as $hair o- the Ministerial Coun$il -or Poli$e an"Emer*en$) Mana*ement F Emer*en$) Mana*ement ?MCPEM5EM@-or $onsi"eration in implementin* the National Strate*) -or isasterResilien$e as a*ree" b) C/A9 in =ebruar) 2011'


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C/NTENTS

TERMS OF REFERENCE...............................................................................................................

............................. I

EXECUTIVE SUMMARY ........................................................................................................................................... 1

LIST OF RECOMMENDATIONS................................................................................................................................ 9

CHAPTER 1.INTRODUCTION......................................................................................................................... 19

CHAPTER 2. THE AVAILABILITY OF FLOOD INSURANCE FORHOMES.......................................................... 29

CHAPTER 3. THE AFFORDABILITY OF FLOOD INSURANCE FOR HOMES...................................................... 35

CHAPTER 4. FLOOD INSURANCE FOR OTHERDELLINGS........................................................................... 43

CHAPTER 5. FLOOD INSURANCE FOR HOME CONTENTS.............................................................................. 4!

CHAPTER ". FLOOD INSURANCE FOR SMALL BUSINESSES........................................................................... 51

CHAPTER !. A FLOOD PREMIUM DISCOUNT AND REINSURANCESYSTEM................................................... 55

C#$%&'( ). I*%(+,-/ 0++ (-*$$/'*'&............................................................................... "!

C#$%&'( 9. A $&-+$ -$&'( (- $ -($6' $/'67........................................................ !3

C#$%&'( 18. O'( $&($ -$&'(................................................................................................ !9

C#$%&'( 11. A('-/ +-($6'.......................................................................................... )3

CHAPTER 12. REDUCING UNDERINSURANCE OF HOMES.......................................................................... 93

C#$%&'( 13. C+*'( $:$(''.................................................................................................... 99

CHAPTER 14. CLAIMS HANDLING AND DISPUTERESOLUTION................................................................ 189

C#$%&'( 15. F-/ ' (';--/ +0 %;-6 -0($&(6&('............................................... 123


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C#$%&'( 1". I*%'*'&$&-+ $&($-&-+............................................................................... 12!

APPENDICES ...................................................................................................................................................... 129

LIST OF SUBMISSIONS....................................................................................................................................... 13"

BIOGRAPHIES OF REVIE PANEL MEMBERS................................................................................................. 13)

SECRETARIAT .................................................................................................................................................... 148

CONSULTANTS................................................................................................................................................... 148

PAPERS PRODUCED FOR THE REVIE............................................................................................................148

SPEECHES


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1

EXECUTIVE SUMMARY

PURPOSE AND NATURE OF THEREVIE

=ollo&in* the series o- storms( -loo"s an" $)$lones that ae$te" man) parts o- Gueenslan" an" some parts o- i$toria in late 2010 an" earl) 2011( the Assistant Treasurer( the Hon Bill Shorten MP( announ$e" on 8 Mar$h 2011 the Naturalisaster #nsuran$e Re%ie& ?the Re%ie&@'

#t &as not these e+treme &eather e%ents themsel%es that stimulate" the Re%ie&(be$ause the insuran$e in"ustr) has "emonstrate"( in e%ents su$h as the i$torianbush-ires in =ebruar) 200D an" the hailstorms in Melbourne an" Perth in Mar$h2010( that it has the nan$ial $apa$it) an" other resour$es nee"e" to respon"

ee$ti%el) to su$h e%ents'

#t &as the absen$e o- -loo" insuran$e -or man) poli$)hol"ers( parti$ularl) inBrisbane an" #ps&i$h( that &as the primar) stimulus -or the Re%ie&'

=or all natural "isasters other than oo"( insuran$e $o%er -or homes has been&i"el) a%ailable in Australia -or man) )ears' A hi*h proportion o- Australianhomeo&ners ha%e insuran$e $o%er -or their homes an" this pro%i"es $o%er -orstorms( earth;ua,es( bush-ires an" $)$lones' Man) homeo&ners an" renters alsoha%e $orrespon"in* $o%er -or the $ontents o- their homes'

The -a$t that all home insuran$e poli$ies $o%er storm "ama*e in$lu"in* relate"

&ater "ama*e but man) "o not $o%er -loo" "ama*e( &hi$h "istin$tion is seen asar$ane an" arti-i$ial b) man)( le" to a $ommunit) ba$,lash a*ainst insurers"urin* 2011 an" $onsi"erable "istress( nan$ial loss an" "isillusionment -or man)insure" homeo&ners'

Hen$e the theme o- the Re%ie&( arisin* -rom the -loo" $o%era*e problem an" the-ull Terms o- Re-eren$e o- the Re%ie&( is the a%ailabilit) an" a--or"abilit) o- insuran$e o--ere" b) the pri%ate insuran$e mar,et( &ith parti$ular re-eren$e to-loo" but also in$lu"in* other natural "isasters'

There are also other issues "ealt &ith in this Re%ie&' There is e%i"en$e o- un"erinsuran$e( &hi$h has be$ome most apparent a-ter total losses that ha%e o$$urre"in bush-ires an" are also seen a-ter $)$lones an" oo"s' There are also some

in"i$ations that aor"abilit) is emer*in* as a *enuine problem -or $)$loneinsuran$e in -ar north Gueenslan"' There are issues aroun" $onsumers a$$essto in-ormation an" "o$umentation in a -orm the) $an rea"il) un"erstan"( *i%enthat insuran$e is a $omple+ pro"u$t in$reasin*l) transa$te" throu*h "ire$t salesan" rene&als b) telephone an" the internet un"er a Ino a"%i$e mo"el' Thereare also some ;uestions about insurers $laims per-orman$e an" the "e*reeo- in"epen"en$e o- some o- their internal "ispute resolution pro$esses'

The Terms o- Re-eren$e also spe$i-i$all) as,e" the Re%ie& Panel to $onsi"er&hether the e+istin* Common&ealth an" State arran*ements -or "ealin* &ithnatural "isaster re$o%er) an" resilien$e re;uire supplementation'

The Re%ie& Panel publishe" an #ssues Paper on 2 .une 2011 an" re$ei%e" inresponse more than 100 submissions -rom both pri%ate in"i%i"uals an"or*anisations( in$lu"in* insurers( *o%ernments an" *o%ernment a*en$ies($onsumer *roups an" %arious e+perts' Panel members $onsulte" "ire$tl)( bothin"i%i"uall) an" $olle$ti%el)( &ith representati%es o- insurers( lo$al an" state


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1

*o%ernments( $onsumer *roups an" $ommunit) representati%es in$lu"in* someae$te" b) the oo"s an" $)$lone'


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E+e$uti%e

FLOODINSURANCE

T#' '(7-/ 0++ -($6' %(+;'* 0+( '6+**-&7

There is a serious $ommunit) issue aroun" the a%ailabilit) an" aor"abilit) o- oo" insuran$e' #t is essentiall) a $o%era*e issue' !hen oo"s o$$ur( in"i%i"ualsan" the $ommunit) o-ten su--er se%ere e$onomi$ an" so$ial lossesJ these lossesare e+a$erbate" b) the -a$t that man) poli$)hol"ers "o not ha%e oo" $o%er(lea"in* to nan$ial har"ship that impe"es personal an" $ommunit) re$o%er)'=urther( an) attempte" resolution o- the $o%era*e problem lea"s "ire$tl) toa$$ess problems: some poli$)hol"ers $annot obtain oo" $o%er an"( amon* those&ho $an( there &ill be some &ho "o not pur$hase the $o%er( -or %arious reasons(in$lu"in* in man) $ases its hi*h pri$e' E+perien$e also sho&s that those moste+pose" to the ris, o- -loo" are the least li,el) to pur$hase it'

The $o%era*e aspe$t o- the oo" insuran$e problem $an be "es$ribe" as theconsumer’s disaster insurance paradox :

• all home an" $ontents poli$ies in$lu"e( as a matter o- $ourse( $o%er -or:

– re ?in$lu"in* bush-ire@J

– earth;ua,eJ

– storm ?in$lu"in* rain( &in" an" $)$lone@J

and the poli$)hol"er $annot opt5out

but

• man) home an" $ontents poli$ies e+$lu"e $o%er -or -loo"J

and( i- the $o%er is o--ere"( in man) $ases the poli$)hol"er $an an" "oes opt5out'

Hen$e the absen$e o- oo" $o%er -or man) insure" properties an" the asso$iate"$ombination o- un$ertaint) an" "isputes aroun" insuran$e $laims &hen oo"s "oo$$ur is the primar) problem $on-rontin* the Re%ie& Panel'

There are appro+imatel) 6'6 million "eta$he" houses in Australia an" aroun" 1to 2 million other "&ellin*s( in$lu"in* terra$e houses an" home units'

Perhaps > per $ent to 10 per $ent o- "&ellin*s are sub


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E+e$uti%e

• to maintain a $ompetiti%e insuran$e mar,et( insurers nee" $ontrolo%er their -loo" ris, e+posures an" a$$umulations( a"e;uatein-ormation -or pri$in* an" un"er&ritin*( an" the abilit) to see,$ommer$ial pri$es -or an) -loo" ris,s that the) un"er&riteJ an"

• there has been sub5optimal ris, mana*ement o- oo"5prone lan" an"

buil"in*s in the past' A$$or"in*l) an) ne& arran*ements to-a$ilitate impro%e" insuran$e $o%era*e shoul" also en$oura*e( eithero- themsel%es or in $on #nsurers &ill nee" a$$ess to a *o%ernment5sponsore" reinsuran$e -a$ilit) i- the) are to "eli%er oo" insuran$e "is$ounts &ithout $ompromisin* theiro&n $ommer$ial positions'

#n "esi*nin* a set o- arran*ements to meet these -i%e re;uirements( it isimportant not to $reate per%erse out$omes that en$oura*e -urther resi"ential"e%elopment in areas sub


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E+e$uti%e

matters( a sin*le a*en$) o- this ,in" &oul" ha%e the &here&ithal to su$$ee"&here pre%ious e--orts o- $ooperation( in *oo" -aith( amon*st a m)ria" o- a*en$ies an" "epartments o- *o%ernment ?Common&ealth( State an" lo$al@ an"insurers ha%e )iel"e" limite" results'


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E+e$uti%e

P-,+&$ R'6+**'$&-+ 2> A,$-$;--&7

That all home insuran$e( home $ontents an" home unit insuran$e poli$ies in$lu"eoo" $o%er'

!hile a$,no&le"*in* that man) insurers are &or,in* har" to e+ten" thea%ailabilit) o- -loo" $o%er( their initiati%es alone &ill not meet the $ommunit)nee"'

P-,+&$ R'6+**'$&-+ 3>A?+($;--&7

That a s)stem o- premium "is$ounts be intro"u$e" in or"er that mostpur$hasers o- home insuran$e( home $ontents an" home unit insuran$e poli$iesin areas sub


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E+e$uti%e

N$&-+$ 6++(-$&-+ +0 0++ (- *$$/'*'&

!or,in* &ith State an" lo$al *o%ernments an" insurers( this ne& a*en$) &oul"be the -o$al point o- a$ti%ities an" responsibilities su$h as:


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E+e$uti%e

• $oor"inatin* oo" mappin* a$ross the $ountr) ?&hile lea%in*responsibilit) -or un"erta,in* -loo" mappin* in the han"s o- State*o%ernments an" their $oun$ils@J

• intro"u$in* national *ui"elines -or oo" ris, mappin* an"$lassi$ationsJ

• a$tin* as a national repositor) o- or portal -or oo" ris, in-ormation(primaril) throu*h $ollatin* an" anal)sin* in-ormation $olle$te" b)othersJ

• $ontinuin* "e%elopment o- the #nsuran$e Coun$ils National =loo"#nsuran$e atabase

?N=#@ or an e;ui%alent "e%elope" b) the ne& a*en$)J

• monitorin* the e--e$ti%eness o- oo" ris, miti*ation initiati%es a$rossthe $ountr) an" a"%isin* on priorities -or -loo" ris, miti*ationJ

• publishin* an" "isseminatin* oo" ris, in-ormation in -ormatsappropriate to the %arious user *roupsJ an"

• o%erseein* the ;ualit) o- the oo" ris, in-ormation'

T#' 0++ (- ('-($6'0$6--&7

The reinsuran$e -a$ilit) &oul" be operate" b) the a*en$) in $on


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E+e$uti%e

R'6+**'$&-+> S*$ ;-'

That all insurers oerin* small business insuran$e be obli*e" to in$lu"e oo"$o%er on an opt5out basis( instea" o- opt in4opt5out as at present( in all o- theirsmall business pa$,a*e poli$ies'

The Re%ie& Panel belie%es that the ;uestions o- oo" $o%er as stan"ar" in smallbusiness poli$ies an" a$$ess to "is$ounte" premiums -or small businesspoli$)hol"ers shoul" be re%isite" on$e the re$ommen"e" arran*ements -orhomes( home units an" $ontents are in pla$e'

OTHERISSUES

C76+

'

Be$ause $)$lones are treate" b) insurers as storms( all insure" homes an" homeunits ha%e -ull $)$lone $o%era*e' As a result( -or e+ample( poli$)hol"ers &ith$laims -or loss or "ama*e -rom C)$lone asi ha%e( on the &hole( been "ealt &ithe--e$ti%el) b) their insurers' As rene&als o$$ur o- poli$ies ta,en out be-oreC)$lone asi( ho&e%er( some %er) lar*e premium in$reases( sometimes300 per $ent or more( are bein* sou*ht b) insurers( espe$iall)-or home units'

Su$h e+treme pri$e in$reases $an o$$ur -or se%eral reasons but( irrespe$ti%e o- the reasons( the) are presentin* imme"iate aor"abilit) problems an" $an also

$ause $ontinuin* problems'

The Re%ie& Panel has not ha" the means or the time to in%esti*ate -ull) the$auses o- these pri$e in$reases but it "oes a$$ept that there is( prima -a$ie(an a--or"abilit) problem' The Panel is there-ore ma,in* a t&o5sta*ere$ommen"ation:

R'6+**'$&-+> C76+'

• The A*en$) o--er $o%er to insurers -or $)$lone ris,( on the same basis as -oroo" ris,( but &ith no a--or"abilit) "is$ounts ?in the e+pe$tation that( &henthe A*en$) "oes its o&n pri$in*( it &ill oer a -air pri$e to home an" homeunit o&nersJ this pri$e ma) be lo&er but is not *uarantee" to be lo&er thanthe pri$es o- $ommer$ial insurers@J an"

• an in%esti*ation be un"erta,en to as$ertain &hether there is a basis -or*rantin* aor"abilit) "is$ounts -or $)$lone ris,( alon* the lines o- there$ommen"e" oo" insuran$e "is$ounts( -or homes an" home units innorthern Australia'

R'%$6'*'& ,$' $ *-('

Most insurers limit their $o%er to a sum insure" spe$i-ie" b) the poli$)hol"er -orboth home buil"in* an" $ontents' Some insurers( ho&e%er( oer -ull repla$ementor reinstatement $o%er on the home itsel- in the e%ent o- a total loss' 9enerall)neither the homeo&ner nor the insurer ,no&s ho& $losel) the sum insure"$orrespon"s to the repla$ement %alue'


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E+e$uti%e

!hene%er there are "isasters that $ause homes to be total losses( the le%el o- un"er insuran$e be$omes %isible' This phenomenon is most e%i"ent in bush-ires'#n both the 2003 Canberra bush-ire an" the 200D i$torian bush-ires the le%els o- un"er insuran$e &ere se%ere( t)pi$all) 30 per $ent or more( e+$ept -orhomeo&ners &hose poli$ies oere" repla$ement $o%er'


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E+e$uti%e

B) $ontrast( most other $laims( bein* partial losses onl)( are $o%ere" b) insurerson a repla$ement or reinstatement basis( so lon* as the loss "oes not e+$ee" thesum insure"'

#t is &i"el) a$$epte"( &ithin an" outsi"e the insuran$e in"ustr)( that repla$ement$o%er is a superior pro"u$t -or the homeo&ner to $o%er -or a spe$ie" ma+imum

sum insure"' Ne%ertheless there are $omple+ities an" $ompetiti%e problems -orinsurers to ma,e a transition to repla$ement $o%er' =urther( there is an a"%erse$)$le o$$urrin* &here some o&ners "eliberatel) un"er5insure( to re"u$e theirpremiums( $ausin* $ross subsi"ies -rom those &ho "o not ,no&in*l) un"er5insure( lea"in* to insurers ha%in* to in$rease premiums -or the lo&er?ina"e;uate@ sums insure"'

#n or"er to a""ress '(-($6' an" to brea, the $)$le o- $hroni$ un"er5statement o- sums insure"( the Re%ie& Panel is re$ommen"in* that insurersma,e the transition to o--erin* -ull repla$ement $o%er( but that the) be *i%ensome reasonable lea" time to "o so'

R'6+**'$&-+> R'%$6'*'& V$'

All home buil"in* insuran$e poli$ies oerin* sum insure" $o%er be mo"i-ie" b)the en" o- 2018 so as to o--er -ull repla$ement $o%er in the e%ent o- total loss o- the home'

C+*'( *$&&'(

C$-* $ -&'($ -%&' ('+&-+

The Re%ie& Panel is ma,in* a number o- re$ommen"ations to impro%epoli$)hol"ers $laims han"lin*an" "ispute resolution e+perien$e'

R'6+**'$&-+> C$-* $ D-%&'('+&-+

The Co"e o- Pra$ti$e be mo"i-ie" to pro%i"e -or a ma+imum 8 months to$laims "etermination ?that is( a "e$ision to a$$ept or re


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E+e$uti%e

a$$ount o- an) in"i%i"ual insurers &ho put at ris,( throu*h poor $laims(the reputation o- the in"ustr)'


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E+e$uti%e

C+*'( $:$('' $& &-*' +0 %(6#$'

The pur$hase o- home insuran$e in%ol%es an initial a*reement usuall) b)telephone ba$,e" up the later mailin* to the $onsumer o- poli$) materialsin$lu"in* premiums an" poli$) $o%era*e "etails an" the PS' This is propose" to

be supplemente" b) another Ia-ter sale "is$losure throu*h the 7e) =a$tStatement'

#t is &ell re$o*nise" that poli$)hol"ers ha%e not been a$ti%el) en*a*e" inrea"in* these o-ten $omple+ post5sale materials' These ha%e little impa$t inin-ormin* $onsumers in a pra$ti$al &a) o- the terms an" $on"itions o- theirpoli$ies'

The Re%ie& Panel belie%es that it is important $onsumers are ma"e a&are be-orethe) $omplete their pur$hase &hether the poli$) has -ull -loo" $o%er an" &hetherit has -ull repla$ement $o%era*e' These are e+tremel) important $o%era*e"e$isions -or $onsumers' #t is re$ommen"e" that $onsumers be *i%en Ihealth

&arnin*s i- the poli$) propose" to be pur$hase" "oes not in$lu"e oo" $o%er orrepla$ement $o%er' These &arnin*s shoul" also be in$lu"e" in the 7e) =a$tStatement' /n$e -ull oo" $o%er an" repla$ement $o%er are -ull) in pla$e this&arnin* at time o- pur$hase ma) no lon*er be nee"e"'

R'6+**'$&-+> P+-676+,'($/'

A Ihealth &arnin* s)stem be intro"u$e" in $on


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E+e$uti%e

&arnin*s -or home an" $ontents poli$ies about -loo" $o%er an" repla$ement%alue $o%er' The) also in$lu"e the #nsuran$e Coun$il ma,in* a series o-


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E+e$uti%e

amen"ments to the 9eneral #nsuran$e Co"e o- Pra$ti$e in the interests o-impro%e" $onsumer a&areness an" $onsumer prote$tion re*ar"in* the han"lin*o- home an" $ontents insuran$e $laims'

LIST OF RECOMMENDATIONS

The Re%ie& Panel ma,es -our pi%otal re$ommen"ations:

P-,+&$ R'6+**'$&-+ 1>A(6#-&'6&('

That an a*en$) sponsore" b) the Common&ealth 9o%ernment be $reate" tomana*e the national $oor"ination o- oo" ris, mana*ement an" to operate as)stem o- premium "is$ounts an" a oo" ris, reinsuran$e -a$ilit)( supporte" b)a -un"in* *uarantee -rom the Common&ealth'

P-,+&$ R'6+**'$&-+ 2> A,$-$;--&7

That all home insuran$e( home $ontents an" home unit insuran$e poli$ies in$lu"eoo" $o%er'

P-,+&$ R'6+**'$&-+ 3>A00+($;--&7

That a s)stem o- premium "is$ounts be intro"u$e" in or"er that most

pur$hasers o- home insuran$e( home $ontents an" home unit insuran$e poli$iesin areas sub


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E+e$uti%e

R'6+**'$&-+ 9>

That oo" premium "is$ounts be pro%i"e"( in the same manner as -orhomes( to the bo"ies $orporate o- eli*ible properties( an" on the same basisas -or "eta$he" homes'

R'6+**'$&-+ 18>

That the "enition o- a home -or the purposes o- -loo" $o%er an" oo"premium "is$ounts be an) buil"in* -or &hi$h a homeo&ner pur$hases a homeinsuran$e poli$)'

• This "enition ensures that the Re%ie& Panels re$ommen"ations&oul" appl) to all

Inon5stan"ar" t)pes o- homes su$h as manu-a$ture" homes an" mobilehomes insure" un"era home buil"in*s insuran$e poli$)'

R'6+**'$&-+ 11>

That all home $ontents insuran$e poli$ies in$lu"e -loo" $o%er'

R'6+**'$&-+ 12>

That "is$ounts be pro%i"e"( in the same manner as -or homes( to home$ontents insuran$e poli$ies -or eli*ible properties'

R'6+**'$&-+13>

That all insurers oerin* small business insuran$e be obli*e" to in$lu"e oo"$o%er on an opt5out basis( instea" o- an opt in4opt5out basis as at present(in all o- their small business pa$,a*e poli$ies'

R'6+**'$&-+ 14>

That oo" premium "is$ounts not be pro%i"e" to small businesses an" that thereinsuran$e -a$ilit) not oer reinsuran$e -or small businesses'

R'6+**'$&-+15>

That the ;uestions o- -loo" $o%er as stan"ar" in small business poli$ies an"a$$ess to "is$ounte" premiums -or small business poli$)hol"ers shoul" bere%isite" on$e the re$ommen"e" arran*ements -or homes( home units an"home $ontents are in pla$e'

R'6+**'$&-+1">

That oo" premium "is$ounts be "eli%ere" throu*h a mo"el that re;uiresinsurers to retain an" pri$e a portion o- the ris, &ith the remain"er to be$e"e" to the reinsuran$e -a$ilit) at a "is$ounte" reinsuran$e premium'


26/252

E+e$uti%e

R'6+**'$&-+ 1!>

That -or home buil"in* insuran$e poli$ies re$ei%in* -ull "is$ounts(poli$)hol"ers pa) -or that portion o- the ris, retaine" b) the insurer an"pa) nothin* -or the remain"er o- the ris, up toL>00(000' =or properties &ith a %alue *reater than L>00(000 poli$)hol"ers then

pa) the -ull $ost o- the portion o- ris, e+$ee"in* L>00(000'

R'6+**'$&-+ 1)>

That -or bo") $orporate insuran$e poli$ies re$ei%in* -ull "is$ounts(poli$)hol"ers pa) -or that portion o- the ris, retaine" b) the insurer an" pa)nothin* -or the remain"er o- the ris, up toL>00(000 times the number o- units' =or properties &ith a %alue *reater thanL>00(000 times thenumber o- units poli$)hol"ers then pa) the -ull $ost o- the portion o- ris,e+$ee"in* L>00(000 times the number o- units'

R'6+**'$&-+19>

That -or home $ontents insuran$e poli$ies( poli$)hol"ers pa) -or that portiono- the ris, retaine" b) the insurer an" pa) nothin* -or the remain"er o- the ris,up to L100(000' =or $ontents &ith a %alue *reater than L100(000 poli$)hol"ersthen pa) the -ull $ost o- the portion o- ris, e+$ee"in*L100(000'

R'6+**'$&-+ 28>

That homes at hi*h an" e+treme ris, o- -loo" be pro%i"e" &ith "is$ountsinitiall) an" that the) be assesse" re*ularl) -or miti*ation &or, alrea")un"erta,en an" the potential -or -urther miti*ation'

R'6+**'$&-+ 21>

That a -loo" ris, reinsuran$e -a$ilit)( or reinsuran$e pool( be establishe"

&hi$h &oul" ha%e t&o primar) -un$tions:

• to "eli%er "is$ounts to home( $ontents an" home unit insuran$e poli$ies -oreli*ible propertiesJ

an"

• to pro%i"e oo" reinsuran$e $apa$it) to the insuran$e mar,etJ

an" t&o ,e) "esi*n -eatures:

• an e+$ess o- loss arran*ement &hereb) insurers retain an" pri$e a Irst lossportion o- ea$h

poli$) on a $ommer$ial basisJ an"

• a I-a$ultati%e4obli*ator) reinsuran$e treat) that &oul" allo& insurersto $e"e in"i%i"ual properties to the pool i- the) &ish ?-a$ultati%e o--er@ butthe pool &oul" be obli*e" to a$$ept them ?obli*ator) a$$eptan$e@'


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E+e$uti%e

R'6+**'$&-+22>

That the Common&ealth 9o%ernment *uarantee pa)ment o- $laims -rom thereinsuran$e pool b) ensurin* that( &hene%er a -un"in* short-all o$$urs in thepool throu*h $laims e+$ee"in* the -un"s hel" in the pool( the Common&ealth

&oul" meet the short-all'

R'6+**'$&-+ 23>

That the Common&ealth see, reimbursement o- some portion o- the short-all-rom the State or Territor) *o%ernment in &hose


28/252

E+e$uti%e

R'6+**'$&-+ 2">

That the A*en$) $har*e insurers a small a"ministrati%e -ee -or ea$hpoli$) $e"e" to the reinsuran$e -a$ilit)'

R'6+**'$&-+ 2!>

That:

• the A*en$) oer $o%er to insurers -or $)$lone ris,( on the same basis as -oroo" ris,( but &ith no a--or"abilit) "is$ounts ?in the e+pe$tation that( &henthe A*en$) "oes its o&n pri$in*( it &ill oer a -air pri$e to home an" homeunit o&ners' This pri$e ma) be lo&er but is not *uarantee" to be lo&er thanthe pri$es o- $ommer$ial insurers@J an"

• an in%esti*ation be un"erta,en to as$ertain &hether there is a basis -or*rantin* aor"abilit) "is$ounts -or $)$lone ris,( alon* the lines o- there$ommen"e" oo" insuran$e "is$ounts( -or homes an" home units innorthern Australia'

R'6+**'$&-+2)>

That all home( $ontents an" home unit insuran$e poli$ies $o%er the poli$)hol"er-or storm sur*e( tsunami an" lan"sli"e( &here the storm sur*e( tsunami orlan"sli"e is the result o- another e%ent that is $o%ere" un"er the poli$) an"re*ar"less o- &hether the insure" propert) "ire$tl) su--ers "ama*e -rom the

un"erl)in* insure" e%ent'

• This in$lu"es storm sur*e asso$iate" &ith a $)$lone that "oes not $ross the$oastline'

R'6+**'$&-+29>

That the Common&ealth en*a*e &ith the insuran$e in"ustr) an" the States an" Territories in plannin* -or the -uture $oor"ination o- $haritable an"*o%ernment pa)ments to in"i%i"uals to assist &ith re$o%er) a-ter -uture

natural "isasters'

R'6+**'$&-+ 38>

That a$$ess to insuran$e be enhan$e" throu*h the "e%elopment o- alternati%epa)ment options( in parti$ular:

• b) the Common&ealth 9o%ernment arran*in* -or Centrelin, $ustomersto be able to pa) insuran$e premiums -ortni*htl) throu*h Centrepa)J an"

• b) State( Territor) an"4or lo$al *o%ernments an" $ommunit) housin*

or*anisations arran*in* insuran$e premiums -or $ontents to be able to bein$orporate" into rent -or so$ial an" $ommunit) housin* tenants'


29/252

E+e$uti%e

R'6+**'$&-+31>

That len"in* institutions remin" mort*a*ors annuall) o- their obli*ations to hol"home insuran$e an" o- the ris,s o- un"er5insuran$e in or"er to minimise non5insuran$e an" un"er insuran$e o- homes'

R'6+**'$&-+ 32>

That all home buil"in* insuran$e poli$ies pro%i"in* sum insure" $o%er bemo"ie" b) the en" o- 2018 so as to in$lu"e repla$ement %alue $o%er in the e%ent o- total loss o- thehome'

That "urin* the transition perio" insurers $onsi"er ho& the "esi*n -eatures o- home buil"in* repla$ement %alue poli$ies shoul" respon" -ollo&in* a natural"isaster( in$lu"in* the $on"itions un"er &hi$h $ash settlements are to beoere" an" -inalise"'

R'6+**'$&-+33>

That subse$tion 3>?2@ o- the #nsuran$e Contra$ts A$t 1D8 be amen"e" sothat poli$)hol"ers are not "eeme" to be $learl) in-orme" o- a "e%iation -romIstan"ar" $o%er b) simpl) bein* pro%i"e" a $op) o- the insuran$e poli$) orpro"u$t "is$losure statement'

R'6+**'$&-+34>

That( in en"orsin* the 9o%ernment proposal -or a 7e) =a$ts Statement( the7e) =a$ts Statement list repla$ement $o%er an" all natural "isaster e%ents(i"enti-ie" as Istan"ar" $o%er in the #nsuran$e Contra$ts Re*ulations 1D>'

That insurers issue a 7e) =a$ts Statement to poli$) hol"ers &ith all ne&poli$ies &ritten an" all poli$) rene&als on an annual basis'

R'6+**'$&-+35>

That a Ihealth &arnin* be pro%i"e" b) insurers to the pur$hasers o- home an"$ontents poli$ies that "o not in$lu"e -ull oo" $o%er or -ull repla$ement $o%er' The health &arnin* shoul" be pro%i"e":

• in the 7e) =a$ts StatementJ

• %erball) at the time o- telephone pur$haseJ an"

• in &ritin* on internet ;uotation so-t&are -or all online pur$hases'

R'6+**'$&-+ 3">

That the Common&ealth 9o%ernment intro"u$e a stan"ar" "enition o-oo" in the -orm


30/252

E+e$uti%e

propose" in the IRe-ormin* oo" insuran$e: Clearin* the &aters $onsultationpaper'


31/252

E+e$uti%e

R'6+**'$&-+ 3!>

That( in or"er to *i%e *eneral insuran$e poli$)hol"ers the same le*al reme"iesas other $onsumers( un-air $ontra$t terms la&s be applie" to *eneral insuran$e'

R'6+**'$&-+ 3)>

That e%er) APRA5authorise" *eneral insurer a"opt an" $ompl) &ith the 9eneral#nsuran$e Co"e o- Pra$ti$e'

R'6+**'$&-+39>

That the #nsuran$e Coun$il o- Australia amen" the Co"e o- Pra$ti$e to impose a-our month time limit ?sub

That the #nsuran$e Coun$il o- Australia amen" $lause 8'> o- the 9eneral

#nsuran$e Co"e o- Pra$ti$e to e+ten" the time &ithin &hi$h $laimants innatural "isasters ha%e the ri*ht to ma,e -urther $laims or lo"*e re%ie&s a-terthe nalisation o- an initial $laim to se%en months -rom the "ate o- therele%ant natural "isaster( re*ar"less o- &hen the initial $laim &as nalise"'


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E+e$uti%e

R'6+**'$&-+ 42>

That the #nsuran$e Coun$il o- Australia amen" the 9eneral #nsuran$e Co"e o-Pra$ti$e to re;uire that:

• internal "ispute resolution pro$esses be in"epen"ent o- the $laims han"lin*

"epartment an" the internal "ispute resolution oi$ers ha%e the authorit) too%erturn the ori*inal "e$isions an" to a$$ept $laimsJ

• internal "ispute resolution $omplaints be nalise" &ithin an a**re*ate o- 8> "a)s an" i- this time limit is not met( the insurer to a"%ise the $laimanto- his or her ri*ht to lo"*e an e+ternal "ispute resolution $omplaint &ith the=inan$ial /mbu"sman Ser%i$e ?i- appli$able@ an" to see, in"epen"ent le*ala"%i$eJ

• time limits on internal "ispute resolution $omplaints $ommen$eimme"iatel) a-ter a poli$)hol"er noties the insurer o- a $omplaint(&hether %erball) or in &ritin*J an"

• a *eneral -airness test be applie" to $laims an" $omplaints han"lin*'

R'6+**'$&-+ 43>

That the #nsuran$e Coun$il o- Australia amen" the 9eneral #nsuran$e Co"e o-Pra$ti$e su$h that the 9eneral #nsuran$e Co"e Complian$e Committee:

• be appointe" in the same manner as =/S Panels( &ith the in"epen"ent $hairan" the $onsumer an" in"ustr) representati%es to be appointe" in the

same manner as the ombu"sman an" panel members are appointe" un"erthe =/S rulesJ

• ha%e the authorit) an" resour$es to re$or" all brea$hes o- the Co"ereporte" to it( to in%esti*ate brea$hes o- the Co"e &here appropriate an"to $on"u$t re*ular au"its o- insuran$e $ompanies -or $omplian$e &ith theCo"eJ

• report serious or s)stemi$ brea$hes o- the Co"e "ire$tl) to AS#CJ an"

• publi$l) release annual reports as to Co"e $omplian$e an" brea$hes(&ith insurers to be i"entie" in the reports'

R'6+**'$&-+44>

That AS#C $on"u$t a re%ie& o- the 9eneral #nsuran$e Co"e o- Pra$ti$ethree )ears a-ter the amen"ments re$ommen"e" to the Co"e in this Re%ie&are implemente"( in or"er to assess the ee$ti%eness o- the Co"e &ith a %ie&to "eterminin* &hether an AS#C Re*ulator) 9ui"e -or $laims han"lin* shoul"then be intro"u$e"'

R'6+**'$&-+ 45>

That the Common&ealth an" State *o%ernments pro%i"e -un"in* -or le*ala"%i$e an" assistan$e &ith insuran$e "isputes -ollo&in* natural "isasters'


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E+e$uti%e

R'6+**'$&-+4">

That the $urrent -ormula -or the $ost o- rebuil"in* o- State an" Territor) assetsun"er the Natural isaster Relie- an" Re$o%er) Arran*ements be $han*e" toe+pen"iture be-ore an) insuran$e re$o%eries b) the State or Territor) rather

than net o- an) insuran$e re$o%eries'

R'6+**'$&-+4!>

That the 9o%ernment *i%e priorit) to intro"u$in* le*islation ne$essar) to ensurethat all home( $ontents an" home unit insuran$e poli$ies in$lu"e oo" $o%eran" to establish a ne& national a*en$) -or -loo" ris, mana*ement an" oo"reinsuran$e purposes'


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C#$%&'( 1.INTRODUCTION

1'1' Natural "isasters( in$lu"in* bush-ires( -loo"s( storms( $)$lones an"earth;ua,es( are a -eature o- the Australian $limate an" lan"s$ape' Sin$e the100s( European settlement in Australia has been a"%ersel) a--e$te" b) natural"isasters' 9o%ernor Ma$;uarie( in 11D( pronoun$e":

‘When the too fatal consequences of years has shown theSuerers the inevitable consequences of their wilful and wayward habit of

placing their Residences and Stock ards within the reach of !oods andwhilst it must be still in their Remembrance" that many of the deplorablelosses would have been in great #easure arrested had the Settlers paid dueconsideration of their own interests" and to the frequent $dmonitions toremain within the !ood marks of the townships assigned to them on thehigh lands%

&hose" who notwithstanding shall perversely neglect the present admonition and 'xhortation to their own (enefit" must be consideredwilfully and obstinately blind to their own interests and undeserving any future )ndulgences%’

1

1'2' The a%era*e annual $ost o- the "ama*e $ause" b) -loo"s an" othernatural "isasters is estimate" to be o%er L1 billion(

2&ith "e%astatin* losses

e+perien$e" b) in"i%i"uals( $ommunities an" the e$onom)' A ran*e o- resear$hsu**ests that the number an" se%erit) o- e+treme &eather e%ents in Australia isset to rise'

3

THE NATIONAL STRATEGY FOR DISASTERRESILIENCE

1'3' At its meetin* on 13 =ebruar) 2011( the Coun$il o- Australian9o%ernments ?C/A9@ a"opte" the National Strate*) -or isaster Resilien$e toimpro%e Australias abilit) to &ithstan" an" re$o%er -rom -uture "isasters' TheStrate*) -o$uses on the share" responsibilit) o- *o%ernments( business an"$ommunities in preparin* -or( an" respon"in* to( "isasters' C/A9 a*ree" tota,e imme"iate steps to implement the Strate*)' 7e) elements o- the Strate*)are un"erstan"in* ris,s( $ommuni$atin* &ith an" e"u$atin* people about ris,s(

empo&erin* in"i%i"uals an" $ommunities to e+er$ise $hoi$e an" ta,eresponsibilit)( an" re"u$in* ris,s in the built en%ironment'

1'8' As part o- the Strate*)( the Common&ealth( State an" Territor)*o%ernments &ill be &or,in* to*ether to support strate*ies to -oster *reaterin"i%i"ual an" $ommunit) resilien$e( in$lu"in* ha%in* a"e;uate an" appropriatele%els o- insuran$e $o%er' The Terms o- Re-eren$e -or this Re%ie&( announ$e" b)the Assistant Treasurer on 8 Mar$h 2011( ma,e $lear that the Re%ie& is part o- the National Strate*) -or isaster Resilien$e'

1'>' The Re%ie& Panel respon"e" to the Terms o- Re-eren$e in the rst instan$eb) preparin* an" publishin*( on 2 .une 2011( an #ssues Paper that sou*ht publi$submissions' As a result( more than100 submissions &ere re$ei%e" -rom both pri%ate in"i%i"uals an" or*anisations(in$lu"in* insurers(

1 E+tra$t -rom 9o%ernment an" 9eneral /r"ers( 9o%ernment House S)"ne)( > Mar$h 11'


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2 Bureau o- Transport E$onomi$s( IE$onomi$ Costs o- Natural isasters in Australia( Report

103( 2001' h ttp :44 &&& 'b tre '* o %' a u 4i n -o 'as p + R es o u r$e# " 1D D N o "e # " > T his report

estimate" that the a%era*e annual $ost o- natural "isasters in Australia to be L1'18 billion

o%er the perio" 1D651DDD'

3 Mi""elmann( Miriam H ?E"itor@( INatural HaKar"s in Australia #"enti-)in* Ris, Anal)sisRe;uirements 200

9eos$ien$e Australia Canberra p iii'

h ttps :44 &&& '* a'*o%' a u4p r o "u $ ts4se r% le t4$ o n tr o ll e r

e%e n t 9 E/ C A T O E T A # S $at n o 6>888

19

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Chapter 1:

*o%ernments an" *o%ernment a*en$ies( $onsumer *roups an" %arious e+perts'urin* the $ourse o- the Re%ie&( Panel members ha%e also $onsulte" "ire$tl)(both in"i%i"uall) an" $olle$ti%el)( &ith representati%es o- insurers( lo$al an" state*o%ernments( $onsumer *roups an" $ommunit) representati%es in$lu"in* somea--e$te" b) the -loo"s an" $)$lone'

THE ROLE OF INSURANCE IN RECOVERING FROMNATURAL DISASTERS

1'6' #nsuran$e is a ,e) element in buil"in* $ommunit) resilien$e toa"%erse &eather e%ents( in$lu"in* natural "isasters' #t pro%i"es nan$ialprote$tion in the e%ent o- loss throu*h a pro$ess o- a**re*atin* premiums an"sprea"in* ris,' All o&ners o- propert)( in$lu"in* homeo&ners( renters an" smallbusinesses( are able to prote$t themsel%es -inan$iall) -rom natural "isasters b)pur$hasin* insuran$e' /%er the last > )ears( Australian insurers ha%e$ompensate" $onsumers an" businesses b)pa)in* o%er L11 billion in $laims -or

&eather e%ents'8

1'' Ha%in* insuran$e -or natural "isasters "oes not re"u$e the number o- "eaths an" in


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Chapter 1:8 Pearson( E I7e) Per-orman$e Tren"s -or the Australian #nsuran$e Mar,et F sli"e 1> -rom=init) Consultin*

Presentation at !eatherin* the =uture F The 1th Sunshine Seminar 20521 .ul) 2011'

> Ruther-or"( .9 in The Courier Mail( 31 .anuar) 1D8'


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Chapter 1:

1'11' 9o%ernments( the insuran$e in"ustr) an" in"i%i"ual insurers ha%ere%ie&e" the -loo" insuran$e situation a-ter almost e%er) ma intro"u$e" stan"ar" terms an"$on"itions -or pres$ribe" *eneral insuran$e $ontra$ts( in$lu"in* home an"$ontents insuran$e poli$ies' The stan"ar" $o%er in$lu"es as perils oo" as &ellas re( storm( earth;ua,e( $)$lone an" a$tions o- the sea( an" it also in$lu"es -ullrepla$ement $o%er -or lost or "ama*e" items' Ho&e%er( insuran$e $ompaniesare permitte" to %ar) or e+$lu"e an) o- these Istan"ar" $o%er items pro%i"e"the) I$learl) in-orm poli$)hol"ers o- the e+$lusions' #nsurers ha%e lar*el)$ontinue" to e+$lu"e oo"'

1'1D' #n 1DD( the insuran$e in"ustr) establishe" the Claims Re%ie& Panel?to"a) no& part o- the =inan$ial /mbu"sman Ser%i$e@' The Claims Re%ie& Panelha" the po&er to re%ie& "e$isions on in"i%i"ual insurer members( in$lu"in* &ithrespe$t to oo" "ama*e' ntil the a"%ent o- the Claims Re%ie& Panel( %er) -e&

insurer "e$isions on oo" $laims ha" been teste" throu*h the $ourts' The ClaimsRe%ie& Panel ma"e "eterminations on the 1DD3 Benalla -loo"s an" the 1DD To&ns%ille -loo"s &hi$h brou*ht more losses &ithin the s$ope o- the "enitions o- storm but "i" not lea" to broa" pro%ision o- -loo" $o%er'


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Chapter 1:6 Ho&ar"( The Hon .ohn INatural isaster #nsuran$e: A Poli$) #n-ormation Paper issue" b) the

Treasurer Ma) 1DD p iii'


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Chapter 1:

1'20' A-ter the !ollon*on* oo"s in 1DD( &here $ommunit)( *o%ernment an"me"ia pressure le" some insurers to ma,e e+ *ratia pa)ments( se%eral insurersmo%e" to e+ten" their poli$ies to in$lu"eIash oo"in* &hile others pro%i"e" partial -loo" $o%er &ith sub limits' !estpa$intro"u$e" -loo" $o%er at this time'

1'21' Chan*es to the /orporations $ct 4550 intro"u$e" *reater obli*ations oninsurers in respe$t o- "is$losure( in$lu"in* Pro"u$t is$losure Statements' !hilethese statements pro%i"e "etails o- e+$lusions su$h as -loo"( the) ha%e ha" littleimpa$t on $onsumer $on-usion about &hat is $o%ere" b) a poli$) an" "i" not lea"to oo" $o%er bein* ma"e more &i"el) a%ailable'

1'22' 1'22' /ther attempts b) the insuran$e in"ustr) to n" a solution to-loo" insuran$e issues -ollo&e"' #nitiati%es usin* "i--erent mo"els &ere trie" in1DD5D0( 1DD to 2000 an" in 2008' Ea$h in"ustr) attempt to resol%e theproblem $olle$ti%el) &as unsu$$ess-ul be$ause o- one or more o- the -a$tors o- $ompetition( la$, o- a"e;uate oo" maps( la$, o- *o%ernment support(a--or"abilit) an" tra"e pra$ti$es $on$erns'

1'23' The $ontro%ers) resultin* -rom the Ne&$astle an" Hunter alle) oo"s in200 reporte"l) le" the insuran$e in"ustr) to propose a $ommon "enition o- -loo"'

D The #nsuran$e Coun$il "ra-te" a oo" "enition an" sou*ht an

e+emption -rom the Australian Competition an" Consumer Commission?ACCC@ -or &hat ma) other&ise ha%e been anti5$ompetiti%e beha%iour amon*insurers' Ho&e%er( a-ter $omplaints -rom $onsumer *roups that the propose""enition &as broa"er than the "enition $ommonl) use" b) insurers ?an"there-ore li,el) to lea" to more e+$lu"e" oo" losses@( the ACCC ultimatel)re' As the in"ustr) itsel- notes( ho&e%er( the $hallen*e is to ensure that theestimate" per $ent o- properties e+pose" to -loo" ris, are $o%ere" b) poli$ies&hi$h in$lu"e oo" $o%er'

12Clearl)( there is no benet in ha%in* the D3 per $ent

o- Australian properties at no or minimal ris, o- oo" $o%ere" -or -loo" an" the

per $ent o- properties &ith -loo" ris, mostl) &ithout -loo" $o%er'

Mason( A.( IThe Histor) o- =loo" #nsuran$e in Australia p D -oun" on

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#bi" p '

D AAP IEas) "enition o- Ioo" is )et to sur-a$e in the Australian =inan$ial

Re%ie&( 26 .anuar) 2011

h ttp :44a-r' $o m4 p 4n at io n al 4 e a s) O "e n i tio nO o -O- loo "O is O ) e t O H 0 E .! a* K -o 9 rE ! N

$ > " 10 #n 2006( 3 per $ent o- poli$es pur$hase" in Australia $o%ere" oo"' #n 2010( >8 per $ent o-

poli$ies pur$hase" in Australia $o%ere" oo"' The in"ustr) a"%ises that b) 2013( it is

estimate" that a -urther 30 per$ent o- the mar,et &ill potentiall) oer oo" $o%er'

#nsuran$e Coun$il o- Australia submission p

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-O Aus tr a lia'p " - '

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Chapter 1:11 Mason op $it pp D510'

12 #nsuran$e Coun$il o- Australia submission p

h ttp :44 &&& 'n" ir' * o %' a u 4$o n te n t4C o n ten t'a s p+

" o$ s ub mi s s io ns ' h tm

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Chapter 1:

THE FLOOD INSURANCEPROBLEM

1'26' The limite" e+tent o- -loo" $o%er in home( $ontents an" home unitinsuran$e poli$ies be$ame apparent -ollo&in* the series o- natural "isasters in

Australia o%er the summer o- 2010511( as has also been the $ase a-ter pre%iousoo"s'

1'2' Most natural "isasters are $o%ere" b) these insuran$e poli$ies' The most$ommon e%ents o- storm( $)$lone an" bush-ire are in$lu"e"' Earth;ua,e is alsoin$lu"e"' Some less $ommon e%ents su$h as lan"sli"e( tsunami an" storm sur*eare sometimes in$lu"e" &hen the) are $onne$te" to another insure" e%ent su$has earth;ua,e in the $ase o- tsunami( storm or $)$lone in the $ase o- stormsur*e( an" hea%) rain-all in the $ase o- lan"sli"e'

1'2' All natural "isasters present a $hallen*e -or insurers' Sin$e ea$h e%entt)pi$all) ae$ts a lar*e number o- poli$)hol"ers at on$e( a sin*le natural "isaster

$an ha%e a %er) lar*e impa$t on insurers e+pose" to the ris,' This $hallen*e(ho&e%er( "oes not pre%ent insurers -rom o--erin* $o%er -or most natural "isastersin all home insuran$e poli$ies' An"( in lar*e part( insurers are able to $o%er thesenatural "isasters at a--or"able premiums'

1'2D' =loo"( ho&e%er( presents a uni;ue $hallen*e to insurers' =loo" t)pi$all)ae$ts homes lo$ate" $lose to a ri%er or on a -loo" plain' As a result( the samehomes are a--e$te" ea$h time a ri%er -loo"s' =i*ure 1 "emonstrates that( &hilethe %ast ma #$& - ' 0++ -($6' %(+;'*@

1'30' As a result o- the %er) hi*h premiums asso$iate" &ith hi*h oo" ris,(insurers ha%e o-ten simpl) $hosen to e+$lu"e -loo" $o%er -rom insuran$e poli$ies'

1'31' The absen$e o- oo" $o%er lea"s to a para"o+ -or $onsumers: home($ontents an" home unit insuran$e poli$ies in$lu"e prote$tion -or storm($)$lone( bush-ire an" earth;ua,e an" the poli$)hol"er $annot usuall) opt5

outJ but -loo" $o%er is o-ten e+$lu"e" -or -loo" an"( i- oo" is $o%ere"( thepoli$)hol"er $an usuall) opt5out'

1'32' .ust as the same homes bein* ae$te" ea$h time a ri%er oo"s limits theappetite o- insurers to oer oo" $o%er( lea"in* to an a%ailabilit) problem( so &illthese homes -a$e hi*h insuran$e premiums( lea"in* to an a--or"abilit) problem'Some homeo&ners -or &hom oo" $o%er is a%ailable


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http:44&&& 'aph'*o %'a u4ho us e4$o mmittee4spla4 ins uran$ e4 sub

ma) $hoose not to pur$hase it' The e+perien$e o- NRMA insuran$e in NS!( &hi$ho--ers -loo" $o%er on an opt out basis( sho&s that man) poli$)hol"ers e+pose"to hi*h oo" ris, opt not to ta,e5up oo" $o%er'

13

1'33' The impli$ations o- limite" oo" $o%er -or $onsumers( insurers an" the$ommunit) pla)e" out in Brisbane( #ps&i$h an" parts o- i$toria o%er the summer

o- 2010511' The insuran$e poli$ies hel" b) people a--e$te" b) the storms or b)C)$lone asi respon"e" to those e%ents( enablin* poli$)hol"ers to repair orrebuil" &ith minimal "ela) an" "isputes' But some people &ho &ere -loo"e""i" not ha%e -loo" $o%er as part o- their insuran$e' This le" to nan$ial stress("ela)s an" "isputes'

1'38' !ithout -loo" $o%er( ae$te" homeo&ners &ere le-t &ithout the nan$ialresour$es to repair or rebuil" their homes' Some poli$ies that in$lu"e" oo" $o%er&ere sub

1'36' The Ioo" %ersus storm problem ?see Appen"i+ A -or -urthere+planation o- oo" %ersus storm@ also le" to more "isputes -ollo&in* the-loo"s than ha%e -ollo&e" other natural "isasters' Table 1 ?belo&@ sho&s thatthe number o- "isputes as a proportion o- insuran$e $laims &as mu$h hi*her inthe Gueenslan" an" i$torian oo"s than in C)$lone asi( the hail storms inMelbourne an" Perth an" the storms in Melbourne' isputes lo"*e" &ith the=inan$ial /mbu"sman Ser%i$e as a proportion o- $laims -rom the Gueenslan" an"i$torian oo"s &ere nearl) t&ent) times lar*er than "isputes -rom the other

e%ents' Also man) more poli$)hol"ers sou*ht le*al a"%i$e: o- the "isputes ta,ento the =inan$ial /mbu"sman Ser%i$e( 3 per $ent o- those &ith "isputes arisin*-rom the Gueenslan" -loo"s ha" le*al representation $ompare" &ith > per $ento- "isputes -rom C)$lone asi'

16

13 #A9 submission( p 3

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mi s sio ns'htm

18 npublishe" "ata pro%i"e" to the Re%ie& Panel b) the #nsuran$e Coun$il o- Australia'

1> The e*al Ai" Gueenslan" submission hi*hli*hts the e+perien$e o- $lients a$ross a

&i"e %ariet) o- issues'

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16 =inan$ial /mbu"sman Submission to the House o- Representati%es in;uir) into theoperation o- the insuran$e

in"ustr) "urin* "isaster e%ents( 2011( p21

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T$;'1> D-%&' +/' :- F-$6-$ O*;*$ S'(,-6'1!

Disaster Event Number of Insurane

!aims as at "#$%$"&''

Number of (is)utes !o(*e(

as at +&$%$"&''

Lo(*ements )er '&&&

!aims

SW/SE Queensland flooding —

Roma and Charleville

7,056 1 !"0

#i$%orian &ail S%orm — 'el(ourne 1!5,000 9! 0"7

W) &ail S%orm — *er%h 165,000 +! 0"!

Queensland looding — -ris(ane,

rural Queensland, .oooom(a,

o$2er #alle2

56,00 +79 3"5

#i$%orian flooding — rural #i$%oria 7,500 111 1+"3

C2$lone 4asi — Cassoar2 Coas%,

or%h Queensland

63,!00 +9 0"7

#i$%orian S%orms — 'el(ourne and

su(ur(s

+3,000 56 1"

W) (ushfires — *er%h and

surrounds

+10 0 0

Sour$e See foo%no%e"

1'3' The number o- lo"*ements per 1(000 $laims( as re$or"e" in the ri*ht5han" $olumn o- this table( sho&s the $lear "i--eren$e bet&een the -re;uen$) o- "isputes in oo"s ?'> an" 18' -or the Gueenslan" an" i$torian -loo"s( &ithmu$h lo&er -re;uen$ies -or the storms@'

1'3' The "ela)s an" "isputes also ha" an impa$t on insurers( &ho su--ere"$onsi"erable publi$ ba$,lash an" some loss o- the $ommunit)s $on"en$e' At atime &hen insurers $laims stas &ere bein* as,e" to "eal &ith lar*e numbers o- $laims( there &ere in$i"ents o- sta bein* abuse"' #nsurers ha%e also borne the$osts in%ol%e" in "eterminin* the $ause o- the "ama*e an" in resol%in* the man)"isputes'

1'3D' The nan$ial stress( "ela)s an" "isputes -elt b) in"i%i"uals also inhibite"the $ommunit)s re$o%er)' The *reater the ta,e5up o- -ull home insuran$e $o%er-or natural "isasters( the *reater the resilien$e an" re$o%er) o- the $ommunit)&hen a natural "isaster o$$urs an" the lo&er the relian$e on $ommunit) support'

1'80' !hen an in"i%i"ual su--ers -inan$ial loss -rom a natural "isaster( theimpa$t is -elt b) the broa"er $ommunit)J -or e+ample( su$h in"i%i"uals mi*ht be

-or$e" to lea%e the $ommunit) either temporaril) or permanentl)( ae$tin* so$ialin-rastru$ture su$h as lo$al businesses an" $ommunit) *roups' As oo"in* o$$ursin $on$entrate" areas( man) members o- the $ommunit) $an su--ersimultaneousl)' An) la$, o- -loo" insuran$e in$reases the bur"en on the$ommunit) as it *oes throu*h the re$o%er) phase'

1'81' The $ommunit) also bears some o- the nan$ial impa$t throu*h$haritable -un"s an"*o%ernment relie- pa)ments' #n Gueenslan" in 2011( the Premiers =un"raise" L23 million to


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1 =inan$ial /mbu"sman Ser%i$e Submission to the House o- Representati%es Stan"in*Committee on So$ial Poli$) an"

e*al Aairs #n;uir) into operation o- insuran$e in"ustr) "urin* "isaster e%ents( 2D Au*ust2011( p 1D


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Chapter 1:

"istribute to those a--e$te" b) the oo"s an" C)$lone asi'1

Spen"in*

b) the State an"Common&ealth *o%ernments on in"i%i"uals an" businesses has totalle"appro+imatel) L1'1 billion'

1D

1'82' imite" oo" $o%er $ause" "istress( "ela)s an" "isputes -or the in"i%i"uals&ho &ere -loo"e"' #t also a--e$te" a"%ersel) the $ommunit)s resilien$e an" itsabilit) to re$o%er -rom the -loo"s' That is &h) the ,e) issue be-ore the Re%ie&Panel is ho& to meet the $ommunit) nee" -or -loo" $o%er'

AN INTEGRATEDSOLUTION

1'83' A""ressin* the a%ailabilit) o- oo" insuran$e on its o&n &ill not sol%e the$o%era*e problem' There are a number o- $onstraints that must be a""resse" to"eli%er impro%e" -loo" $o%er'

1'88' =irstl)( -or homes at hi*h ris, o- oo"( the premium re;uire" b) the insurerto o--er them -loo" $o%er &ill be hi*h' That $oul" lea" to an aor"abilit) problem-or these poli$)hol"ers &ho ma) respon" b) $easin* to use insuran$e alto*ether'A""ressin* a%ailabilit) &ithout a""ressin* aor"abilit) &ill there-ore not "eli%ermore -loo" $o%er' Both a%ailabilit) an" a--or"abilit) nee" to be "ealt &ithto*ether'

1'8>' Se$on"l)( to maintain a $ompetiti%e insuran$e mar,et( insurers nee"$ontrol o%er their -loo" ris, e+posures an" a$$umulations( a"e;uate in-ormation-or pri$in* an" un"er&ritin* an" the abilit) to $har*e $ommer$ial premiums -orthe oo" ris,s that the) un"er&rite' A $ommer$iall) soun" insuran$e mar,et isessential -or "eli%erin* -loo" insuran$e'

1'86' Thir"l)( an) measures to impro%e oo" insuran$e $o%era*e shoul"en$oura*e impro%e" oo" ris, mana*ement ?measurement an" miti*ation@(either on their o&n or in $on $onsi"er both the a%ailabilit) an" the aor"abilit)o- -loo" $o%er -or home units an" home $ontents'

• Chapter e+plains ho& a 7&'* +0 ++ %('*-*

-6+& mi*ht operate in $on


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Chapter 1:1 Gueenslan" Re$onstru$tion Authorit) Au*ust Report( 2011( p36

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1D Gueenslan" Re$onstru$tion Authorit)( Au*ust Report pp3853>

h ttp :44 &&& '; l" r e $o ns t r u $ tio n 'o r * 'au4 rep o r t s 4a u * us t 520115

m o n th l)5r ep o rt'

http://www.qldreconstruction.org.au/u/lib/CEO-Report---August-2011-Report---Public.pdfhttp://www.qldreconstruction.org.au/u/lib/CEO-Report---August-2011-Report---Public.pdfhttp://www.qldreconstruction.org.au/u/lib/CEO-Report---August-2011-Report---Public.pdfhttp://www.qldreconstruction.org.au/u/lib/CEO-Report---August-2011-Report---Public.pdfhttp://www.qldreconstruction.org.au/u/lib/CEO-Report---August-2011-Report---Public.pdfhttp://www.qldreconstruction.org.au/u/lib/CEO-Report---August-2011-Report---Public.pdfhttp://www.qldreconstruction.org.au/reports/august-2011-monthly-reporthttp://www.qldreconstruction.org.au/reports/august-2011-monthly-reporthttp://www.qldreconstruction.org.au/reports/august-2011-monthly-reporthttp://www.qldreconstruction.org.au/reports/august-2011-monthly-reporthttp://www.qldreconstruction.org.au/u/lib/CEO-Report---August-2011-Report---Public.pdfhttp://www.qldreconstruction.org.au/u/lib/CEO-Report---August-2011-Report---Public.pdfhttp://www.qldreconstruction.org.au/reports/august-2011-monthly-reporthttp://www.qldreconstruction.org.au/reports/august-2011-monthly-reporthttp://www.qldreconstruction.org.au/reports/august-2011-monthly-report


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Chapter 1:

• The nature o- -loo" ris, measurement an" ho& it mi*ht be impro%e"in the -uture is e+plaine" in Chapter ( &hi$h "is$usses the nee" -ornational $o5or"ination o- -loo" ris, *'$('*'& $ *-&-/$&-+that &ill( amon* other thin*s( un"erpin the a%ailabilit) an"aor"abilit) o- oo" $o%er'

1'8' Chapter D then e+plains the $(6#-&'6&(' that &oul" be nee"e" to brin*to*ether all these $onsi"erations into an inte*rate" -rame&or,( in the -orm o- anational "isaster ris, an" insuran$e a*en$)'

1'8D' !hile the main -o$us o- the Re%ie& is -loo" insuran$e( the Terms o- Re-eren$e as, the Re%ie& Panel to $onsi"er natural "isaster insuran$e morebroa"l)' Chapter 10 is $on$erne" &ith the a%ailabilit) an" a--or"abilit) o- $)$loneinsuran$e( an issue that &as spe$i-i$all) raise" in submissions -rom resi"ents o- north Gueenslan"' #t also ma,es re$ommen"ations $on$ernin* a$tions o- the seaan" lan"sli"es'

1'>0' The Terms o- Re-eren$e also as, the Re%ie& Panel to $onsi"er a number o-

other insuran$e matters( some o- &hi$h are not $onne" to natural "isasters'

• The -a$tors $ontributin* to non5insuran$e an" un"er5insuran$eare e+plaine" in

Chapters 11 an" 12 respe$ti%el)( alon* &ith some asso$iate"re$ommen"ations'

• Chapters 13 an" 18 re$ommen" $han*es to impro%e $onsumera&areness o- the s$ope an" $o%era*e o- insuran$e an" insuran$epro"u$ts to assist $onsumers an" also to impro%e $laimsmana*ement( "ispute resolution an" a"%o$a$) ser%i$es'

• Chapter 1> re$ommen"s a $han*e to the &a) that the Common&ealth9o%ernment an" State *o%ernments share the $ost o- re$onstru$tion o- State assets -ollo&in* natural "isasters'

1'>1' Notin* that some o- the re$ommen"ations in the Report &ill re;uire -urther"e%elopment an" le*islation to be passe" b) the Parliament be-ore the) $anta,e e--e$t( Chapter 16 proposes that some re$ommen"ations be pursue"imme"iatel) to ensure that insuran$e $an respon" more ee$ti%el) to the ne+t-loo"'


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• =loo" $o%er -or those homes &ith a hi*h ris, o- -loo" $an result inhi*h insuran$e premiums lea"in* to problems o- aor"abilit)'

9


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Chapter 2: =loo" insuran$e -or

• To maintain a $ommer$iall) soun" insuran$e mar,et ( insurers nee"$ontrol o%er their oo" e+posures an" a$$umulations( a"e;uatein-ormation -or pri$in* an" un"er&ritin*( an" the abilit) to see, $ommer$ial pri$es -or an) -loo" ris,s that the)un"er&rite'

• There has been sub5optimal ris, mana*ement o- oo"5prone lan"an" buil"in*s in the past' A$$or"in*l)( an) ne& arran*ements to-a$ilitate impro%e" insuran$e $o%era*e shoul" also en$oura*e( either o- themsel%es or in $on


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20 Sun$orp submission( p J #A9 submission( p 3'

21 #nsuran$e Coun$il o- Australia submission( p 2'

22 /p $it( p 3'


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"ama*e that the) e+pe$t to be $o%ere" b) their insuran$e poli$) but&hi$h is not( "ue to te$hni$alities asso$iate" &ith the "enition o- oo"' As inthe past( this &ill lea" to "isputes an" "ela)s in ha%in* liabilit) -or their $laim"etermine"' The initiati%es o- insurers alone( there-ore( &ill not be a"e;uate'

2'12' #n summar)( not&ithstan"in* the e+tension o- -loo" $o%er a%ailabilit)( the

$ombination o- aor"abilit) problems an" la$, o- in$enti%e to ta,e5up oo" $o%er&ill lea" to a repeat( a-ter the ne+t oo"( o- the same problems that ha%e $ause"so mu$h "istress an" "issatis-a$tion as in past -loo"s'

A&+*$&-6 F++ C+,'( :-O%&+&

2'13' #t is the %ie& o- the Re%ie& Panel that re;uirin* insurers to in$lu"e -loo"$o%er in their home insuran$e poli$ies( but allo&in* poli$)hol"ers to opt5out(&oul" not represent an a"e;uate impro%ement o%er the e+istin* arran*ements'Su$h an approa$h mi*ht lea" to some in$rease in the ta,e5up o- oo" insuran$e(sin$e homeo&ners &oul" nee" to e+pli$itl) "e$i"e not to a$$ept the insurersoer o- oo" $o%er' Some ma) ma,e a $ons$ious $hoi$e to "o so &hilst othersma) not e+er$ise a $ons$ious $hoi$e an" ha%e $o%er b) "e-ault'

2'18' Ho&e%er an opt5out pro%ision is t)pi$all) onl) e--e$ti%e( ho&e%er( in "ri%in*ta,e5up &here the "e-ault option in%ol%es minimal per$ei%e" $ost to the "e$isionma,er' =or e+ample( &here the $hoi$e to be$ome an or*an "onor has been$han*e" -rom an opt5in to an opt5out "e$ision( the number o- re*istere" or*an"onors has substantiall) in$rease"'

239i%en then that the ta,e5up o- oo" $o%er

&ill $ome &ith a $ost -or some poli$)hol"ers( an" parti$ularl) -or homes &ithmaterial oo" ris,( an opt5out pro%ision is unli,el) to "ri%e a si*ni-i$ant ta,e5upo- oo" insuran$e' The NRMA e+perien$e in Ne& South !ales illustrates that it"oes not &or, e--e$ti%el) &hen there is a material $ost in%ol%e"'28

2'1>' The opt5out approa$h( there-ore( &oul" not pro%i"e the solution to the$o%era*e problem nee"e" b) homeo&ners an" the $ommunit)' Allo&in*poli$)hol"ers to opt5out &oul" mean that there &oul" $ontinue to be nan$ialan" so$ial $osts impose" on the $ommunit) as a result o- homeo&ners -a$in*nan$ial stress -ollo&in* a -loo"' There &oul" $ontinue to be "ela)s in"eterminin* the $ause o- "ama*e( "e-errin* the abilit) o- homeo&ners tore$o%er an" resume normal li%es' There &oul" $ontinue to be more "isputes&ith insurers than a-ter other natural "isasters( $reatin* $osts an" stress -orhomeo&ners an" insurers' #nsurers ma) also $ontinue to -a$e a ba$,lash an"bran" "ama*e -rom homeo&ners &ho belie%e" that their insuran$e ha" not

"eli%ere" to their e+pe$tations'

2'16' A$$or"in*l)( &hilst the Iopt5out option ma) lea" to some in$rease in theta,e5up o- oo" insuran$e( Australians &ill still see a $ontinuation o- theproblems that ha%e pla*ue" past -loo" e%ents an" it is there-ore in the Re%ie&Panels opinion( an ina"e;uate solution'

A&+*$&-6 F++C+,'(

2'1' There are numerous $onse;uen$es o- the in$lusion o- oo" $o%er inall home insuran$e poli$ies( most o- them bene$ial' The more important onesas assesse" b) the Re%ie& Panel are "es$ribe" in the -ollo&in* para*raphs'


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Chapter 2: =loo" insuran$e -or23 .ohnson an" 9ol"stein( Io e-aults Sa%e i%es( 2003(

S$ien$e( ol' 203' h ttp :44 & e b s '&o o r " 'e"u 4p e $ h &


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2'1' =loo" $o%er in all home poli$ies &oul" pro%i"e all poli$)hol"ers &ith thesame nan$ial prote$tion -or oo" that the) $urrentl) re$ei%e in the e%ent o- other natural "isasters an" &oul" pro%i"e poli$)hol"ers $ertaint) o- insuran$e$o%era*e' The "ela)s an" un$ertaint) -or poli$)hol"ers that ha%e resulte" inassessin* -loo" $laims( &here insurers ha%e ha" to $on"u$t "etaile"h)"rolo*i$al assessments to "etermine the sour$e o- &ater "ama*e( &oul" be

eliminate" in -uture( relie%in* man) poli$)hol"ers o- $onsi"erable "isruption an""istress' Eliminatin* the nee" to "istin*uish bet&een oo" an" storm &oul"si*ni-i$antl) re"u$e "isputations -ollo&in* a -loo"'

2'1D' The assessment that homeo&ners $urrentl) ha%e to ma,e in "eterminin*&hether the) nee" or shoul" bu) oo" $o%er( an" &hether a parti$ular insuran$epoli$) pro%i"es -loo" $o%er( &oul" be eliminate"' This assessment is o-ten"i--i$ult' #nsuran$e is a $omple+ pro"u$tJ the "is$losure statement that"es$ribes the pro"u$t is a lon* an" $ompli$ate" le*al "o$ument' The issues -a$e"b) $onsumers in "ealin* &ith $omple+ "e$isions are &ell un"erstoo" in thebeha%ioural e$onomi$s literature' Consumers ha%e been obser%e" tos)stemati$all) ma,e $hoi$es that are not in their o&n interests &hen pa)o--s areun$ertain an" in-re;uent'

2>!here insurers are able to e+$lu"e oo" $o%er

-rom their home insuran$e poli$ies( a pro"u$t alrea") "i--i$ult to na%i*ate is ma"ee%en more "i--i$ult' #t is no surprise( *i%en this $omple+it)( that man)homeo&ners ha%e -oun" themsel%es &ith a home insuran$e poli$) that "oes not$o%er "ama*e to their home $ause" b) oo"' The Re%ie& Panelsre$ommen"ation -or -loo" to be in$lu"e" in all home insuran$e poli$ies &oul"o%er$ome all o- these issues'

2'20' The $ommunit) &oul" also benet' The lo&er the nan$ial impa$t o- anatural "isaster on the members o- a $ommunit)( the lo&er the impa$t on the$ommunit) *enerall)' The more ;ui$,l) an" abl) members o- the $ommunit) $an*et ba$, on their -eet a-ter a natural "isaster( the more ;ui$,l) $ommunit) li-e$an resume'

2'21' The in$lusion o- -loo" $o%er in all home insuran$e poli$ies &oul" re"u$e therelian$e on $harit) an" the nan$ial bur"en on *o%ernments -ollo&in* a oo"&oul" be re"u$e"( throu*h re"u$e" *o%ernment support pa)ments( ma,in* these-un"s a%ailable -or other purposes'

2'22' This approa$h &oul" also pro%i"e benets to insurers' #- all home insuran$epoli$ies in$lu"e" $o%er -or -loo"( the reputational "ama*e that the insuran$ein"ustr) has su--ere" a-ter oo"s &oul" be all but eliminate"' The $on"en$e o- the publi$ in insuran$e *enerall) &oul" not be pre( in or"er -or all home insuran$e poli$ies to

in$lu"e oo" $o%er( ho&e%er( a number o- $onstraints nee" to be met:aor"abilit) -or homeo&ners &ith a hi*h -loo"

2> =or e+ample( 7unrenther( Me)er Mi$hel57er


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Chapter 2: =loo" insuran$e -or26 #nsuran$e Coun$il o- Australia submission( p 2J Sun$orp submission( p J AllianK submission(p 2J !es-armers

#nsuran$e submission( p 10'


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ris,J the maintenan$e o- a $ommer$iall) soun" insuran$e in"ustr)J an" animpro%ement in oo" ris, mana*ement' The Re%ie& Panel belie%es that ea$h o- the $onstraints $an be a$$ommo"ate" in a manner that ' The Re%ie& Panel has $onsi"ere" &hether home insuran$e shoul" be ma"e$ompulsor) -or all homeo&ners( -or all perils in$lu"in* oo"' #t is $urrentl) amatter -or homeo&ners as to &hether the) $hoose to pur$hase insuran$e $o%er-or their homes an" it is a matter -or insuran$e $ompanies to "e$i"e &hether too--er home insuran$e an"( i- so( to &hom' #n the opinion o- the Re%ie& Panel( it&oul" not be appropriate to $han*e this situation an" to $ompel homeo&ners tobu) insuran$e -or their homes' The Re%ie& Panel re$ommen"s( there-ore( thatinsuran$e -or neither home buil"in*s nor home $ontents be ma"e $ompulsor)'

This position is e+plaine" -urther in Chapter 11 an" is o- $ourse "istin$t -rom thepre%ious re$ommen"ation that( i- a homeo&ner pur$hases home insuran$e( oo"$o%er be part o- the insuran$e poli$)'

R'6+**'$&-+ 2>

That home buil"in* an" home $ontents insuran$e shoul" not be ma"e$ompulsor)'

ITEMS INCLUDED IN FLOOD

COVER

2'26' There are a number o- items asso$iate" &ith the home( su$h as -en$es(she"s( per*olas( pools an"


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&hi$h restri$ts the ma+imum pa)out in the e%ent o- oo" "ama*e to a le%elsubstantiall) belo& the repla$ement %alue or sum insure" o- the


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home' !hile the pro%ision o- oo" $o%er &ith a sub5limit ma) be better than nooo" $o%er at all( the Re%ie& Panel $onsi"ers that -loo" $o%er &hen in$lu"e"shoul" be on the same basis as $o%er -or other perils' The $ommunit) e+pe$tsinsuran$e to pro%i"e the same prote$tion -or the poli$)hol"er in the e%ent o- anatural "isaster( &hether it be storm( bush-ire( earth;ua,e or -loo"'

2'30' Another &a) that some insurers limit their -loo" $o%era*e is %ia ane+$ess in the e%ent o- a oo" $laim' !hereas a sub5limit restri$ts an insurerse+posure to lar*e $laims an" lea%es them e+pose" onl) to smaller $laims( alar*e e+$ess has the opposite e--e$t: it restri$ts an insurers e+posure tosmall losses an" lea%es them e+pose" onl) to lar*er losses' .ust as &ith a lo&sub5limit( &here a lar*e e+$ess is applie" to oo" $laims( the poli$)hol"erremains e+pose" to a lar*e nan$ial sho$, in the e%ent o- -loo"'

2'31' =urthermore( &here -loo" sub5limits or hi*h oo" e+$esses appl)( &henoo"s o$$ur insurers nee" to $on"u$t assessments to "etermine &hether the"ama*e &as $ause" b) -loo" or storm( potentiall) lea"in* to the same ,in"s o- "ela)s as -or poli$ies &ith no -loo" $o%er'

2'32' Hen$e the use o- -loo" sub5limits an" hi*h oo" e+$esses *eneratesman) o- the same "i--i$ulties as -loo" e+$lusions'

2'33' The Re%ie& Panel there-ore re$ommen"s that insurers not be able toappl) a oo" spe$i-i$ sub5limit to oo" $o%er( an" an) e+$ess that applies to-loo" $o%er be $ommensurate &ith that appli$able to other perils $o%ere" un"erthe poli$)' This &oul" ensure that the pro%ision o- oo" $o%er b) insurers&oul" pro%i"e *enuine( $omplete prote$tion in the e%ent o- a oo"' Poli$)hol"ers&oul" be -ull) prote$te" -rom the nan$ial sho$,( "ela)s an" "isputes that &oul"other&ise -ollo& a oo"'

R'6+**'$&-+ 3> That &hene%er -loo" $o%er is in$lu"e" in home buil"in* insuran$e poli$ies:

• oo"5spe$i$ sub5limits not appl)J an"

• an) e+$ess that applies to oo" $o%er be $ommensurate &ith thatappli$able to other insure" perils'


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!5

C#$%&'( 3. THE AFFORDABILITY OF FLOODINSURANCE FOR HOMES

3'1' As note" in Chapter 2( the Re%ie& Panel $onsi"ers that the in$lusion o- -loo" $o%er in all home insuran$e poli$ies &oul" meet the nee"s o- homeo&nersan" the $ommunit)( pro%i"e" that it $an be oere" in a &a) that meets thethree important $onstraints o- a--or"abilit)( $ommer$ial soun"ness o- insurersan" ris, $onsi"erations an" ee$ti%e -loo" ris, mana*ement' This $hapter$onsi"ers the aor"abilit) ;uestion'

THE AFFORDABILITY PROBLEM

3'2' Table 2 pro%i"es some estimates submitte" b) the #nsuran$e Coun$il o- thele%el o- -loo" insuran$e premiums -or homes e+pose" to "i--erin* le%els o- -loo" ris,' The) are not pre$ise an" ha%e a number o- $a%eats'

2Ne%ertheless(

the) pro%i"e an in"i$ation o- the "istribution o- homes b) le%el o- oo" ris, an" o- the e+tent o- premium in$reases that mi*ht be re;uire" i- all homeo&ners &ereobli*e" to meet the -ull $osts o- oo" insuran$e'

T$;' 2> I($6' C+6- +0 A&($-$ '&-*$&' +0 0++ -($6'%('*-* ;7 0++ (-

Ris, -an( Fre.uen/ of F!oo(in*

0Annua! Return Interva!1

Number of )ro)erties Annua! F!oo( Ris,

2remium 3

o flood ris il 6,17+,91 0

o rea%er %han 111 76,77 77

'edium 111 %o 50 50,!66 !73 — 57

&igh 50 %o 0 57,367 95 — ,177!

E8%reme 0 %o less %han 15 57,573 ,+!9 — 6,777

o%e .hese are es%ima%es of %he ris ra%ed ri$e onl2 and do no% in$lude o%her $os%s %ha% ould (e added %o a re%ailremiumsu$h as %a8es or (roerage fees"Sour$e :nsuran$e Coun$il of )us%ralia su(mission, 1+"

3'3' /n the basis o- this table( the in$lusion o- oo" $o%er in home insuran$epoli$ies ou*ht not to ha%e an) e--e$t on the home insuran$e premiums -or the6'2 million homes &ithout -loo" ris,' =or the 26(000 homes at a lo& ris, o- oo"( the pri$e impa$t &oul" be lo&( at less than L100 per annum' =or theremainin* 166(000 homes( the impa$t &oul" be lar*er( ran*in* -rom thehun"re"s to thousan"s o- "ollars per annum' Note that the total number o- homesa$$or"in* to this table is about6'6million'

3'8' #t is $lear -rom this table that( &ithout a""itional measures( the in$lusion o- oo" $o%er in all home insuran$e poli$ies &oul" result in hi*h insuran$epremiums -or homes &ith a me"ium( hi*h an" e+treme ris, o- -loo" ?to use the#nsuran$e Coun$ils $lassi-i$ations@( lea"in* to an aor"abilit) problem'Aor"abilit) ma) be thou*ht o- in this $onte+t in t&o parts:


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!5

• Sharp pri$e in$reases: irrespe$ti%e o- the %alue o--ere"( pur$hasers o- most pro"u$ts or ser%i$es rea$t a*ainst lar*e or sharp in$reases inpri$e an" ma) "e$i"e not to pur$hase the pro"u$t or ser%i$e'

2 #nsuran$e Coun$il o- Australia submission( p 18'


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Chapter 3: The a--or"abilit) o- -loo" insuran$e

-or the #nsuran$e Coun$il o- Australia( Ma)

The per$eption o- %alue an" aor"abilit) in these $ases is $on"itione" b) thepri$es that ha%e been pai" in the past' Sharpl) hi*her pri$es are per$ei%e"as un-air or not &orth&hile an" so $an be treate" as unaor"able'

• Hi*h $ost: hi*h pri$es -or pro"u$ts or ser%i$es( as "istin$t -rom hi*hpri$e in$reases( naturall) limit "eman" as potential pur$hasers &ei*h

up their $hoi$es on &hat to spen" their mone) on an" &hat not tospen" it on'

#t is instru$ti%e here to $ompare t)pi$al home insuran$e premiums in$)$lone5ae$te" areas in north Gueenslan" &ith premiums in other areas'#n the north( homeo&ners pa) premiums o- L1(>00 to L2(000 to insure homes that are &orth L300(000( &hereas thesame homes in other parts o- the $ount) mi*ht re;uire premiums o- 00 to L600' The le%els o- non5insuran$e -or homes in north Gueenslan"are un"erstoo" to be small( as the) are in the rest o- Australia but( in thenorth( homeo&ners ha%e be$ome a$$ustome" to the hi*her pri$es( &hi$h o- $ourse ree$t the hi*her ris, o- &in" an" storm "ama*e in an area that is

e+pose" to $)$lones'

3'>' #n $urrent $ir$umstan$es( it is the topi$ o- potential sharp pri$e in$reases-or -loo" insuran$e &hi$h is o- more interest( be$ause it is pri$e in$reases that&ill be rele%ant i- a transition is to be ma"e -or man) homeo&ners -rom nooo" $o%er an" no oo" premium to -ull oo" $o%er an" some a""itionalpremium -or that $o%er'

3'6' #t is e%i"ent that( &ithout measures to limit or alle%iate premium in$reaseson the intro"u$tion o- oo" $o%er in all home poli$ies( a hi*h oo" premium $oul"lea" some homeo&ners to opt5out o- insuran$e alto*ether' This &oul" lea%e theme+pose" not onl) to the ris, o- -loo" but also to a ran*e o- other ris,s' This is theaor"abilit) $onstraint re-erre" to abo%e: the *oals o- this Re%ie& &oul" be

$ompromise" i- the intro"u$tion o- -loo" $o%er in all home insuran$e poli$ies ha"the ee$t( as the result o- a""itional premiums -or -loo" $o%er( o- in$reasin* thele%els o- non5insuran$e o- ho

(764915827) 72665617 Natural Disaster Insurance Review

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