Daniel Mulino (Fraser, Australian Labor Party) Share this | Hansard source

On behalf of the Standing Committee on Economics, I present the committee's report, incorporating dissenting reports, entitled Flood failure to future fairness:report on the inquiry into insurers’ responses to 2022 major floods claims, together with the minutes of proceedings.

Report made a parliamentary paper in accordance with standing order 39(e).

by leave—In 2022 floods devastated communities right across Australia. The floods in Queensland, New South Wales, Victoria and Tasmania led to more than 300,000 claims being lodged—more than for any other natural disasters in Australia's history. These floods affected my own community, with over 500 houses inundated above the floorboards. Hundreds of families were rendered homeless and many more had their lives turned upside down. To this day many are yet to move home, and many remain in dispute with their insurer. This was a national issue and is a report focused on national dimensions, but I'm very conscious of the human impacts of this issue at a local level in my own electorate.

In response to this series of disasters, the House passed a resolution tasking the House of Representatives Standing Committee on Economics with undertaking an inquiry into the insurers' responses to the 2022 floods. The terms of reference included claims-handling issues but also broader issues relating to insurance affordability and accessibility as well as land use planning.

This report outlines the findings and recommendations arising from a year of investigation by the committee. In addition to hearing from insurance CEOs, regulators and leading consumer advocates, the committee travelled to affected communities and heard directly from individuals, small businesses and community leaders about the response by insurers and the impacts of the floods on their lives and livelihoods. The report contains 86 recommendations, most of which were supported by all committee members. The implementation of these recommendations will lead to better claims management, more transparent reporting of insurer performance, lower premiums for households exposed to a high risk of flooding and improved long-term strategies for flood preparation and resilience.

This report examines the three Ps of flood insurance: policyholders, pooling and preparation. Policyholders need to be treated better, pooling mechanisms need to be strengthened and preparation needs to be given more priority. Policyholders have a right to expect the timely and fair consideration of their claims. While many cases arising from the 2022 floods were handled well, too many were badly mishandled by insurers. Direct witness testimony heard by the committee as well as case studies referenced in submissions detailed many instances of poor treatment and a range of systemic problems. Inconsistent decision-making, long delays due to poor communication and disputes over causation resulted in emotional, mental health and financial strains for many families.

More than two years on from the floods, many people still have not been able to move back into their homes. The committee heard heartbreaking stories of families moving from hotel to hotel at short notice for months, only to end up camping in sheds and backyards after their allowance had expired after six or 12 months. A number of recommendations adopted by the committee relate to the General Insurance Code of Practice. The code needs to be strengthened as a priority. The committee recommended that the ICA register the code with ASIC for approval and, further, that the code become a contractually enforceable element of the policyholder's insurance contract.

In addition, the committee recommended a number of areas where regulation of claims handling should be strengthened, including: legislation standardising key terms across all insurance contracts; clear guidance material being provided to consumers at emergency hubs; the code setting out meaningful timelines in relation to communication; clearer regulatory guidance in relation to the preparation of expert reports; a requirement that, if insurers fail to make a decision after 12 months, they must automatically pay out the claim in full; stronger regulatory guardrails in relation to final cash settlements; fairer dispute resolution processes; and key data in relation to claims management performance being provided to ASIC—and ASIC publishing this data.

Pooling is the second P in my own schematic. Pooling underpins both private and social insurance. It generally works well. However, flooding is one of the most challenging forms of natural disaster to insure. Floods can impact the same towns, the same suburbs and the same regions time and time again. This report identifies a number of areas where pooling should be strengthened. At present, insurance policies have varying lengths for the provision of temporary accommodation and often have a maximum guaranteed length that falls far short of the time taken to complete a rebuild. This places a significant and very difficult to manage set of risks on households. In some policies, the cost of temporary accommodation comes out of the sum insured. The committee believes that it would be better for insurers, rather than households, to manage and bear the cost of temporary accommodation.

Another area where policyholders face considerable risk is where the pre-existing condition of a material aspect of the building is unobservable. A good example of this is stumps. Policyholders often pay premiums for decades when neither the insurer nor the insured knows the state of the stumps. It is understandably frustrating when, after a flood, the floorboards are taken up and an insured person or family is told they will not be paid out due to the condition of the stumps. This aspect of coverage almost becomes a lottery, and that isn't fair. For the insurer to take on more risk in relation to this would have very little impact in terms of their total cost under the pool as a whole and is an important improvement in risk allocation.

Finally, increasingly granular high-quality data that insurers generate and rely upon is leading to, in some ways, more actuarially fair prices, but it is also undermining pooling, particularly at the higher risk end of the market. It is increasingly possible to accurately identify individual properties at very high risk of flooding. This results in extremely high premiums for flood insurance for these households. Given that insurers are increasingly moving away from opt-out policies, this creates a risk that a large number of properties will not be insurable at all. Some form of government intervention will be required. This is reflected in the fact that governments intervene in flood markets in most advanced economies. This topic warrants urgent consideration and modelling by government. Our report doesn't settle on a particular model but rather sets up a set of principles which we believe would govern sensible consideration of possible intervention.

The third P is preparation. The best way to reduce premiums in the long run is to reduce the underlying risk. In 2014, the PC found that 97 per cent of natural disaster funding went towards recovery and rebuilding, and a mere three per cent went to invest in mitigation and resilience. Since 2022, the Australian government has committed to $200 million per year to the Disaster Ready Fund, and it has also partnered with the Queensland and New South Wales governments on resilience authorities. As a result, that ratio has materially improved. However, more is needed, and we need to maintain that over the long term.

Property-level mitigation is also important. For high-risk properties, this includes house buybacks and investments in resilience, such as house raisings. Lower-cost measures, such as more resilient flooring and construction materials, can also reduce risk. But there must also be an obligation on insurers to reduce premiums where households reasonably prove that mitigation works have been completed, and this needs to be monitored appropriately.

In addition to more mitigation at the community and household level, we need to stop the building of more homes and businesses in high-risk areas. It simply isn't fair on households to be purchasing in an area which is already at a one-in-100-year risk or more and which moreover may often increase in risk over time. The Australian government should publish property-level risk data for developments in newly zoned land. In addition, the government needs to consider cooperating with banks to limit or somehow constrain borrowing to housing developments on newly approved land at a one-in-100-year risk or more.

This report contains 86 recommendations that will result in better outcomes for consumers—in particular, for vulnerable consumers and households at very high risk of flood. This is partly a question of better claims management and partly a question of better long-term settings for reducing the nation's underlying risk of flood. Only if we move forward on both fronts can we truly make progress for Australians at risk of future flood events.

In conclusion, I would like to thank a few people. Firstly, I would like to thank the hardworking secretariat. Their commitment to the completion of this inquiry was truly well above and beyond the call of duty. That included travelling to regional areas, often for days at a time, right across the country; processing hundreds of survey responses, often with very complex statements and attachments; processing complex submissions; and drafting a report that cast a wide net—I might say a 453-page net—in a coherent and cogent manner. To Jeff, to Dee, who was on secondment from Treasury, to Tessa, to Laura, to Nicolette and to Jasmine, I say a great big thank you from all of the members of the committee.

I thank my fellow committee members, particularly the four members who were added to the House economics committee for the purposes of this inquiry: the member for Calare, who indeed seconded the motion by the House for this inquiry to be undertaken; the member for Macquarie; the member for Blair; and the member for Page. All four of these members attended public hearings in regional areas, and, very importantly, they provided the committee with deep and thoughtful insights into their communities that had been devastated by the 2022 floods. The report is much richer for their having participated in this report. To the deputy chair, who is in the chamber at the moment, and to all of the other members of the committee, thank you for your diligent, thoughtful and collegiate approach. With 14 members on the committee of this inquiry, it required a lot of give and take to achieve as much consensus as we did.

Finally, as chair, I thank those who shared their experiences of the floods and their aftermath for this report. For many people, it was difficult to participate in this process, particularly by giving evidence at public hearings. We acknowledge that many people are still recovering from the financial and mental health toll, and we are extremely grateful that so many people found the time and were so generous as to give their valuable insights. They gave their insights so that many will benefit from a fairer system in the future.

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