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AIDA PRESIDENTIAL COUNCIL MEETING
ISTANBUL 2ND – 5TH MAY 2012
MAY 4TH CLIMATE CHANGE & INSURANCE WORKING PARTY
IMPLICATIONS OF THE PUBLISHED REPORTS INTO THE
2011 QUEENSLAND FLOODS AND THE AUSTRALIAN
FEDERAL GOVERNMENT ENQUIRY – NATURAL DISASTER
INSURANCE REVIEW
Chris Rodd
Melbourne, Australia
Monash University and
CGU Insurance
Queensland Floods
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21/12/2010 – 14/01/2011
Queensland – Brisbane and suburbs,- approximately 6500
properties affected- Toowoomba and Lockyer Valley inundated
22 drowned
Insurance Claims – 52,000
Insurance losses (current figures) $2.4 billion
Uninsured losses (yet to be determined) $10 billion
Massive infrastructure damage to roads, bridges, rail, drainage
systems – most of which uninsured.
Causes – massive rainfall in critical catchments area
Town of Grantham swept away by flood water
Flooding exacerbated by extensive releases of water from major
dam – Wivenhoe Dam
Queensland Floods cont’d
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Extensive flooding of the CBD of Queensland's largest city,
Brisbane
Wivenhoe dam constructed to supply water to Brisbane. Rainfall
so intense that water had to be released from the dam into the
Brisbane River increasing the intensity of flooding
Royal Commission convened to examine causes of the flood and
its consequences.
Massive uninsured losses due to flood exclusions in many
policies of insurance.
Flood cover for approximately 50% of properties
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Queensland Floods – Commission of
Enquiry
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Interim Report handed down August 2nd 2011
Contained 170 recommendations about public safety &
preparedness relating to flood risk, flood risk warnings,
management of releases from Wivenhoe Dam & future dam
management.
Recommendations concerning multi agency involvement in flood
risk & flood mitigation strategies.
Recommendations on land use restrictions, government buy
backs of property in high flood risk regions
Queensland Floods – Commission of Enquiry Cont.
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State Government agreement to implement all 170 of the
Commissions recommendations contained in the interim report,
including:
- extensive development of detailed flood mapping in
affected areas
- mapping historical flood events including non urban areas
- multi agency involvement including local government
- extensive flood study of the entire Brisbane River
Catchment
- Obligation on Councils (local Government) to maintain up
to date flood information.
SECOND
SECOND
PARTPART
OF OF
COMMISSIONOF
OFENQUIRY
ENQUIRY
COMMISSION
INSURANCE ASPECTS OF THE
EVENT & REINVESTIGATION OF
WATER RELEASES FROM
WIVENHOE
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Enquiry involved further hearings from September 2011 to
February 2012
Recommendations included
- keeping insureds informed of the progress of their claims
- maintaining accurate & complete records of conversations with
claimants
- providing information / documentation confirming basis of any
claims denial.
- to inform policy holders of a right to review a decision to refuse
access to information
- General Insurance Code of Practice issues were raised
Management of Wivenhoe and Somerset
Dam Releases
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Further hearing considered evidence as to the manner in which
the staged release of waters from Wivenhoe & Somerset Dams
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Clear evidence that water released from Wivenhoe impacted the level of
flooding from the Brisbane River
Less clear the level of flooding that would have occurred had the timing of
water releases altered to a more systematic & earlier release of water
Potential liability for the Queensland Government and Water Management
Authority in respect of damages arising from the timing & methodology of
water releases from Wivenhoe and Somerset.
Class Actions contemplated with litigation funders stepping up to potentially
fund the litigation.
Significant issue yet to be resolved is establishing proof of losses arising
from the alleged mismanagement of Wivenhoe.
To what extent would the losses have occurred regardless of depth of
inundation.
Clearly issues of “causation” yet to be determined.
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Management of Wivenhoe Dam Releases cont.
- Clear that in order to protect the integrity of the dam wall,
water had to be released
- Three Senior Flood engineers with responsibility for the dam
management are facing potential criminal charges in respect
of evidence they gave at the initial enquiry earlier in 2011
- Notable that of the few recommendations made concerning
the conduct of insurers, all have been embraced by changes
already agreed to by insurers in relation to the General
Insurance Industry Code of Practice.
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Federal Government Enquiry – Natural
Disaster Insurance Review
Inquiry into Flood & Related matters
- Review undertaken in 2011 at the request of the Australian
Federal Government and Chaired by John Troubridge
- Submissions made by consumer groups & advocates, insurers
independently and insurers as a group through the ICA
(Insurance Council of Australia) over 100 written submissions
- Federal Government prepared a consultation paper titled
‘Reforming Flood Insurance’ – November 2011
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Federal Government Enquiry – Natural Disaster Insurance Review cont.
The Terms of Reference for the NDIR notes that the Australian
Federal Government seeks to ensure that
1. Individuals & communities affected by floods & other natural
disasters are able to recover & rebuild as quickly as possible
2. People are able to choose where they live in an informed way
3. Individuals & communities at risk of future flooding & other
extreme weather events are aware of the risk & can obtain
insurance & benefit from appropriate mitigation strategies
The Terms of Reference also gave the committee the opportunity to
independently review issues relating to insurance including the
possibility to subsidising insurance in high risk areas.
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Federal Government Enquiry – Natural Disaster Insurance Review cont.
The issues paper released in June 2011 canvassed two alternative
Models of flood insurance
1.
Automatic flood cover for home insurance
2.
An opt out approach for home owners
The report released in September 2011 made 45 recommendations
with “pivotal recommendations”
1.
That an agency sponsored by the Commonwealth Government be created to
manage the natural coordination of flood risk management & to operate a
system of premium discounts and a flood risk reinsurance facility, supported by a
funding guarantee from the Commonwealth
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That all home insurance, home contents and home unit insurance policies
include flood cover
“the covering of normally dry land by water that has escaped or been released
from the normal confines of:
1.
Any lake, or any river, creek or other natural watercourse, whether or not
altered or modified; or
2.
Any reservoir, canal or dam”
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Federal Government Enquiry – Natural Disaster Insurance Review cont.
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3.
That a system of premium discounts be introduced in order that
most purchases of home insurance, home contents & home
with insurance policies in areas subject to flood risk be eligible
for discounts against the full cost of flood insurance
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The Commonwealth Government guarantee the payment of
claims by ensuring that whenever a funding shortfall occurs in
the reinsurance facility the Commonwealth would meet the
short fall.
Federal Government Enquiry – Natural Disaster Insurance Review cont.
Other recommendations include
1. All insurers offer flood cover for small business insurance on an
opt out basis
2. Investigation of the government agency subsidy for premiums
in high cyclone risk areas
3. By 2014 insurers offer full replacement cover in the event of a
total loss
4. Amendments to the industry Code of Practice to provide for a
maximum of four months to determine a claim subject to
exceptional circumstances
5. a Key Fact Statement on all domestic insurance policies
outlining the key elements of cover
6. Properties without a flood risk should not pay a flood premium
& that no cross subsidisation occur
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Federal Government Enquiry – Natural Disaster Insurance Review cont.
a system of premium discount be considered with a link to
appropriate mitigation strategies
8. to facilitate flood risk information being made publicly available,
governments should provide indemnities to the providers of
flood information if it proves inaccurate
9. Establishment of a national agency to undertake coordination
of flood risk management & to operate the system of premium
discounts & the flood risk reinsurance facility
10. Increase access to insurance through alternative payment
options
11. Lending instructions remind mortgagors annually of their
obligation to insure
7.
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Federal Government Enquiry – Natural Disaster Insurance Review cont.
12. Introduction of a standard definition of flood
13. Unfair contract terms by applied to general insurance
14. Amend the industry Code of Practice to ensure greater
independence of IDR departments
15. ASIC conduct a review of the Industry Code of Practice every
three years
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Industry Response to NIDR Recommendations
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Flood insurance should not be compulsory – only 7% of
residential property in Australia is exposed to repetitive flooding
Insurers have accepted 85-92% of claims lodged during the
Queensland & Victoria Floods
Flood insurance now readily available for every property in
Australia since 2006. 60% of policies elected by consumers has
flood cover – expected to rise to 84% within 12 months
Mandated cover unfair for properties with no flood risk
A Government flood pool will raise the cost of living
Property owners who face high flood risk due to lack of
government flood mitigation & land use planning decisions
should receive direct premium subsidies from government
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Industry Response to NIDR Recommendations
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Map mitigate & manage the risk to reduce community exposure
Industry will improve community understanding of flood options
through the adoption of a standard definition of flood
insurers will provide a Key Facts Statement with all home
contents policies sold
Industry to provide a public portal to enable consumers to
evaluate flood risk to their property
Industry will provide governments with a geo-coded database
of known flood prone properties across Australia
Will act as agents of the government for government funded
premium subsidies
Will provide public access to information on flood mitigation risk
Industry Response to NIDR Recommendations
13. Will provide public access to information on flood mitigation
14. Amend the General Insurance Code of Practice to address key
issues outlined in the NIDR recommendation*
* key changes already agreed to
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Federal Government review concerning the
cost and availability of Strata Insurance (NDIR)
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Review focussed only on risks located in Far North Queensland
Premiums related to cyclone and storm risk
Examined significant premium increases in affected areas and the
limited availability of insurance
Few insurers prepared to write cover in the affected areas
Key Recommendations
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Work with Queensland Government to “initiate a moratorium”
on stamp duties paid on strata insurance north of the Tropic of
Capricorn.
Conduct a review or strata title laws and create flexibility in
insurance options with increases disclosure of commissions
and fees
Investigate whether there was improper or anti comparative
behaviour in the negotiation of strata insurance via unit
managers and insurance brokers
Carry out further investigation for the reasons for the lack of
competition in the strata title insurance industry in North
Queensland
Investigate the risk assessment methods adopted by insurance
companies to price the risk
Summary
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Flood cover is widely available but no consistent government
action taken to make insurance more affordable by removing
the taxes on insurance
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(Goods & Services Tax, Fire Services Levy & Stamp Duty)
No consistent approach by local Government State or Federal
Governments to flood mapping
Flood Risk is not widespread – Only 7% of residential
properties exposed
Tighter controls on land use in flood prone areas
Develop comprehensive consistent & sound flood mitigation
strategies
Government buy back of properties in high flood risk areas
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Summary cont.
Where building in flood plains is unavoidable build in a flood
compatible way with appropriate materials
8. General Insurance Code of Practice changes already agreed to
9. Many insurers already adopted a standard definition of flood
which in essence will cover all inundation by water escaping a
“water course” as defined. The common law position re
“causation” remains unaffected.
10. The issue remains whether Governments, local, state & federal
will adhere to their part of the bargain which largely involves
development restrictions & flood mitigation strategies
11. with the current delicate political balance Australia the Federal
Government is unlikely to achieve the objective of compulsory
flood cover
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Suggested wording for standard definition
of “Flood”
“the covering of normally dry land by water that has escaped or been
released from the normal confines of:
1. Any lake, or any river, creek or other natural watercourse,
whether or not altered or modified; or
2. Any reservoir, canal or dam”
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