Scott Buchholz (Wright, Liberal Party) Share this | Link to this | Hansard source

The Insurance Contracts Amendment Bill 2011 seeks to change the insurance laws by introducing a standard definition of flood insurance contracts and a key facts sheet that is required to be provided for home building and home contents insurance policies. The coalition will support this bill; however, we have a number of concerns about the final implementation of the measures it introduces.

Following the major floods in 2010 and 2011 in parts of Queensland, New South Wales, Victoria and Western Australia the issue of inadequate flood insurance cover and confusion about what was covered in insurance policies has become predominant. There were seriously damaged households with no or inadequate insurance coverage. Wide variations in the definition of 'flood' between insurance policies and the lack of understanding of what was covered by policies contributed to these gaps in insurance coverage.

My electorate of Wright was enormously devastated by the floods 12 months ago. A policy holder came home after having been evacuated from their town to be standing in their dining room with evidence of up to four feet of water having been through their living room. At least their house was still there. In some cases people's houses were still inundated with water. There was a degree of comfort that came over those people, who had been paying insurance premiums for 20 and 30 years with good intent, as they believed their houses were insured. Can you imagine their despair, after losing their worldly possessions and in many cases losing loved ones, when hydrology reports on the area indicated that their policy did not cover them as the determination was that it was riverine flooding? This bill seeks to address and recalibrate the definition of flooding to a standard definition through all insurance policies.

To give the nation an idea of the degree of flooding and the devastation that was incurred by the people of Wright particularly, I draw on the example of the Steinhart family. Sue relived the story of devastation that she underwent. They have a low-set house; it is about two or three feet off the ground, like a typical housing commission home. It goes down the back steps onto a concrete pad, which is their laundry. She was out the back in the laundry and she felt two or three inches of water under her feet, up to her ankles, and because it was not raining she thought that the washing machine had overflowed. She opened the back door to try and let the water out, and the wheelie bins at the back of the door were starting to float away. She grabbed a couple of pumpkins to put on top of the wheelie bins to stop them from floating around. There were three pumpkins and by the time she had picked the last one up, the wheelie bins were gone. By this stage the water was up to her knees. She went up the two steps in fright to find the kids, while trying to assess how quick this water was coming.

The kids were playing in the bedroom. She got the kids out the window up onto the carport skillion on the side of the house. By this stage the water was up to her hips. Her husband was in the other bedroom trying to smash the window open, panicking. He got the window out and got the last kid up onto the skillion. By the time the family had evacuated onto the skillion the water was lapping onto the skillion roof and they scrambled to get onto the main roof—the apex of the house. They got onto the apex. I said to her, 'How long did all that take to evolve?' She said, 'As long as it took me to tell you this story.' That is how quickly the water came. My heart goes out to those families in Queensland that were downstream from us. They are experiencing flooding in Victoria at the moment. I understand the mass devastation that happens as a result of flooding. In Wright we had very little notice. Subsequently, we suffered an enormous loss of life.

In speaking in support of this bill, if there is a bipartisan message—leave all the politics out of it—that we can share with Australians, and in particular Australians that may not be affected by floods this time, it is this: pick up the phone, spend 40c, invest that time with your insurance company and get some peace of mind. This bill will cover definitions of flooding for new policies. I really want to encourage Australians who have insurance to satisfy this in their minds. Do not leave it until the disaster season; pick up the phone, ring the insurance companies and get some idea as to whether or not they are insured and what the definition of flood means to them.

The Natural Disaster Insurance Review was commissioned on 4 March 2011 in response to this problem. Consultation commenced on 5 April 2011 and review recommendations were received by the government on 30 September 2011 but not released until November. The report contained 47 recommendations providing independent reviews of issues relating to the insurance in light of the natural disasters. Despite having six weeks to consider the recommendations, the government deferred decisions on 39 of the 47 recommendations. In fact, the biggest decision it made was that it was committed to further reviews. It seems to be a common motif of government—why govern when you can have a review, an inquiry, a reference group or some official sounding form of procrastination? It is all or nothing with this government. It is either endless procrastination or knee-jerk reactions. It is either weak-kneed indecision or frantic overreaction. Mining tax—snap decision. Live exports—snap decision. Asylum seekers—months of inaction followed by one knee-jerk reaction after another. Climate change—'Yes we are, no we're not. Wait for a while. No, definitely not under a government I lead,' and finally 'Yes we are,' again.

Returning to the legislation, this bill makes two changes to insurance contracts law following from the review. It provides for a standard definition of flood insurance contracts and requires that customers are provided with a key facts sheet outlining information about their home and building contents insurance policies. However, this is enabling legislation only. Both the standard definition of 'flood' and the specific contents of the key facts sheet will be made in regulations by changes to the Insurance Contracts Regulations 1985.

The industry supports these changes although they have some concerns about the final version of the regulations. As is often the case with the coalition, we see bills come through the House where the intent of the bill may be there but the devil is in the detail. With this particular bill we share the industry's concerns that we do not have the regulations tabled as yet. However, in general, the changes are seen to be acceptable given the level of confusion and uncertainty that surrounded the issue of insurance coverage in the wake of the 2010-11 floods and the industry supports the purpose of the bill. The coalition will be watching the final regulations closely to ensure that they provide adequate certainty to all parties to insurance contracts. 'Certainty' is the key word here. What annoys the living daylights out of people is not knowing where they stand, particularly if they have just gone through the worst experience possible, which I outlined in my opening comments. The standard definition of flood will mean that every time the word 'flood' appears in an insurance contract it will be taken to mean the definition as outlined in the current regulation across all insurance companies. The legislation also restricts contracts including compound phrases with the word 'flood', such as 'flash flood' or 'incidental flooding'. The legislation does not require that all insurance policies insure against flood.

The coalition has consistently supported efforts to develop a standard definition for 'flood' across the entire country and across every insurance company. After the floods in New South Wales in mid-2007 and in Queensland in 2008, the common definition for flood was put forward as an important change by the industry at that time. The federal Labor government did nothing to progress a common definition for flood after the ACCC scuttled previous attempts to ensure such a definition in 2008. It took the disastrous floods of 2011 for Labor to finally consider this matter again. The coalition supports recommendation 36 of the Natural Disaster Insurance Review that the government introduce a standard definition of flood so as to avoid any consumer confusion surrounding flood coverage within insurance policies.

I also take this opportunity to note the contribution of the Standing Committee on Social Policy and Legal Affairs in its inquiry and the members for Blair, Moreton and Murray, who played a vital role in travelling through the country and receiving evidence in that inquiry. I note their contribution to assisting communities with reference to understanding insurance ramifications. The final report recommends the definition of flood be as proposed within the Reforming flood insurance: clearing the waters consultation paper:

'Flood' means the covering of normally dry land by water that has escaped or been released from the normal confines of:

(a) any lake, or any river, creek or other natural watercourse, whether or not altered or modified; or

(b) any reservoir, canal or dam.

That is basically an extension of riverine flooding, where it comes up out of a creek bed and which would normally make your flood insurance nonvalid. The example I gave you was about the Steinhardt's, whose house backed onto a creek. Even though a 23-foot wall of water came across the flat, the insurance company took the position that, because the water came down through the creek bed first and came up out of the creek milliseconds before a 23-foot wall of water followed it, it was deemed to be riverine flooding.

It should be noted that, with the present disaster season well underway, the benefits of any standard definition will be deferred until the legislation passes. The bill requires that a key facts sheet be provided, outlining important information in relation to home building and home contracts insurance policies. The key facts sheet is meant to provide consumers with key information to allow them to more easily understand and compare insurance policies. We all know how flippant we can be with insurance policies. They have two to three pages of fine print and 'would you sign on the bottom line and forward, John'. The intent of the key facts sheet is to outline some of the basic principles that your policy should cover. The draft requirements of the key facts sheet has not yet been released. In his second reading speech Minister Shorten stated that the government would release the details in 2012 and that they would be consumer tested before being introduced. Industry does not object to the key facts sheet but there are some concerns about its final form.

While the industry broadly supports the changes in this legislation, some concerns still remain. Specifically, my colleagues and I on the House Standing Committee on Economics take issue with elements of the final report on the bill. Specifically we are unable to agree with paragraphs 2.50 and 2.51 of the report, which outline assurances that the Department of the Treasury was engaged in consultative dialogue with the industry and consumer groups as well as the observation that there were 'no points raised in submissions or at the hearing that the Treasury was not already across or was not taking steps to consider solutions'. The clear evidence from the industry representatives at the hearing was industry's frustration that many issues, as identified in this report, that have been raised with the government over the operation of the Insurance Contracts Amendments Bill remain unresolved, with industry awaiting comprehensive consultation on regulations before obtaining any clarity on the identified issues. We note that, disappointingly, the bill has missed much of the detail craved by industry to bring certainty.

In closing, I would like to offer my sincere and heartfelt concern to those people in parts of Australia whose homes are currently inundated. I pray that there should be no loss of life, because the form of the flooding is not similar to ours, but flash flooding. Our hearts go out to everyone concerned and may God bless them in their recovery.

Stephen Jones (Throsby, Australian Labor Party) Share this | Link to this | Hansard source

A year ago today a terrible tsunami hit the north-east coast of the island of Honshu, Japan. We have spent a good amount of time appropriately this morning debating a motion in tribute to the people of Japan. We expressed our sympathy as a parliament for the suffering that they have undergone and congratulated them on their recovery efforts. In preparation for that debate, I took time to go through some of the reportage of the event, particularly from Japanese newspapers. I came across numerous stories about reports of discoveries of ancient stone markers on hillsides around some of the devastated villages. Those stone markers were like a warning from ancient generations to current generations not to build below that point.

The reason that those markers were placed somewhere halfway up the hillsides, warning future generations never to build below this point, is that in the past people had experienced tsunami damage—the wiping out of villages—and they knew that it was unsafe to build in those zones. They were sending out a clarion call to future generations: beware. Indeed, before the Second World War, residents had been prohibited from building construction in those areas close to the coast that were subject to tsunami disaster, but during the postwar period there was enormous demand, particularly for affordable housing, in those areas and residential construction did proceed.

I find that story a useful segue into the debate that we are having here today about the amendments to the Insurance Contracts Act because, as the member for Wright has rightly indicated in his contribution to the debate, the renewed impetus for amendments to this legislation is the terrible floods that went through Queensland, including in his electorate, and northern New South Wales in late December 2010 and early 2011. It reminds us all that Australia is a flood-prone nation. Anyone watching the TV news in the past week will have seen the terrifying images of streets and buildings half submerged in enormous expanses of brown muddy water. It is unfortunate that these images and the flooding taking place in the states of New South Wales and Victoria, even as we speak today, are not an uncommon lived Australian experience.

Many of our first settlements in this country took place on the banks of our great rivers. Indeed, many country towns owe their existence to being in places where river crossings could be made. The Insurance Contracts Amendment Bill 2011, which is before the House today, was prompted by those terrible events in December 2010 and 2011. Those events remind us, in many respects, that there are many things that we need to do to ensure that we do not see the terrible suffering, the loss of life and the loss of property that we saw as a result of those flood events. Major flood events like that, which followed higher than average rainfall, had a devastating impact on those who lost loved ones and also saw their life's worth of treasured possessions disappear under a torrent of water. What is left behind is a huge task to rebuild lives, property, infrastructure and communities. Some estimates of the total cost of the 2010-11 floods are around the $10 billion mark. According to the Insurance Council of Australia, these floods resulted in nearly 50,000 insurance claims, with insurance payouts expected to be around $2.3 billion. Cyclone Yasi resulted in more than 60,000 claims, adding over $850 million to insurance claims. If you add in the cost of the floods taking place this month, the bill to Commonwealth, state and local governments will be even higher again.

The Insurance Council of Australia says that seven per cent of residential property in Australia is exposed to predictable and repetitive flooding, causing an estimated $400 million to $450 million in damages each and every year. The cost, which cannot always be measured in purely economic terms, is significant. It is also a cost that comes from the spreading of urban development.

This is where I return to the point I made earlier. In part, the bill before the parliament today is a part of the cure but it is not a part of the prevention. State and territory governments have legislation providing for affordable, intelligible third-party car insurance. These are very important, but they are no alternative to programs that are aimed at reducing bad driving. The legislation before the House today is important but it is no alternative to planning and land use policies that ensure we do not build suburbs and houses in places known to be prone to regular flooding. The challenge for state and local government planning authorities is to ensure that when they are approving new urban development, or revising existing ones, they do not put people in harm's way.

We know that the more our urban centres spread out into our flood plains, the more the risk of flood events for the households within those regions. In my own region, in parts of the Illawarra and the Southern Highlands of NSW, urban development in flood-prone areas is a live and controversial issue. In Throsby, suburbs such as Albion Park and Dapto include low-lying areas that frequently see serious flooding. Despite this, urban development marches on. To give one example, a new development approved at Calderwood, near Albion Park, will see the construction of over 4,500 new homes on what was formerly high-value agricultural land. This land, and the land around it, has been subject to regular flooding and is still subject to regular flooding. Not surprisingly, many locals and the local council have expressed concerns about this development and the cost of ensuring that it is done in a way that mitigates or reduces the threat of floods to the residents who purchase housing and land packages in that area.

The surrounding suburb of Albion Park is largely a dormitory suburb that is poorly served by public transport, so the majority of travel in this area is by private motor vehicle. Access roads in and out of these locals areas, like the Illawarra Highway and West Dapto Road, are regularly flooded and cut off. Only last March extensive flooding meant that many students of Albion Park school were forced to spend the night at their local school when parents could not get through the flooded roads to pick them up. For many who know this region well there is concern about the long-term implications to our region of the changed land use that is entailed in new housing developments.

I simply make the point that the legislation before this House, which deals with the definition of flood and the provisions of flood insurance, will not compensate for the need for credible and thorough land-use planning, particularly for suburbs like those I have just described. This is not to take anything away from the heartfelt words of members, such as the member for Wright, who have expressed the deep concerns in their communities and have reflected upon the anguish that was visited upon them by the 2010-11 floods. I am sure that each and every member in this place shares the concern and sympathy and would like to do everything possible to ensure that those communities get back on their feet. I argue that a part of ensuring that we do everything possible is ensuring that we have a coordinated approach to flood mapping and land use strategies that are about the prevention and not cure.

I turn now to the measures within this bill. I am pleased that the measures within this bill provide some important consumer protections for families and small businesses wanting to ensure that they have the right insurance protection for their homes and businesses. One part of the response that we are dealing with today is how we can ensure that consumers can financially manage the risks to their property from flood damage. The government's proposals are to, firstly, ensure that we have a standard definition of what a flood is for the purpose of insurance policies. As a member of the House of Representatives Standing Committee on Economics I have participated in a recent inquiry into this bill. As part of that inquiry the committee held a roundtable public hearing in early February to consider the proposed measures. The government's proposals for a standard definition and for a fact sheet for consumers were strongly supported by all participants at the hearing.

These standard definition of 'flood', which will be introduced as a result of this bill, describes riverine flooding and reserves the term 'flood' for flooding in this context only. The reason this definition is necessary is that there are a number of sources of inundation of water into properties. The Insurance Council of Australia has identified three broad categories. The first is stormwater or rainfall run-off, commonly referred to as flash flooding, in localised urban areas from high-intensity rainfall. This form of flooding is regularly covered by the current definitions of flooding within insurance contracts. The second is riverine flooding, which is flooding from watercourses or catchments overflowing their banks. Again, this is often covered but not always covered in standard form contracts. The third is flooding as a result of storm surge or the sea level rising. This is rarely if ever covered in any of the standard form insurance contracts. The regulations include the proposed wording of 'flood' to be used in these insurance contracts as follows:

Flood means the covering of normally dry land by water that has escaped or been released from the normal confines of:

A. any lake, or any river, creek or other natural watercourse, whether or not altered or modified; or

B. any reservoir, canal, or dam.

The primary benefit of having a standard definition is so that consumers can better understand their insurance coverage. This will also decrease the number of disputes over insurance claims, which were significant in the wake of the floods in Queensland, New South Wales and Victoria over the last 12 to 18 months. This will be an important administrative cost saving for insurance companies, who will no longer have to allocate resources to contesting uncertain definitions for flood damage and the definitions of flood damage within those insurance contracts. This new definition will apply to home building and home contents, small business and strata title insurance policies. This is a simple and practical measure that will enable consumers to make better informed decisions regarding the extent to which policies provide cover for flood, and what flood cover actually means.

The second important measure contained within the bill involves introducing a one-page fact sheet which will outline key information in relation to home building and home contents policies in an easy to read and consumer friendly layout. This measure will make the purchase of home building and home contents policies simpler for consumers, assisting them to compare policies with a consistent document and facilitate more effective and informed decision making. The detail of these measures, including the actual wording of a standard definition of 'flood' and the content of the key facts sheet, will be contained in the insurance contract regulations and will be released for public consultation. The response from the insurers and particularly from the Insurance Council of Australia has been positive. Given these measures being brought forward in the bill, it will now be important to monitor how the implementation of these will affect consumers taking out insurance in flood prone areas. It is important that people living in flood prone areas are aware of the risk of flooding and have appropriate insurance to cover this risk. The insurance industry already maps and models flood risk when determining insurance premiums, often relying on data from local and state government authorities. I support the call by the Insurance Council of Australia to ensure that we have a standard mechanism for mapping flood and flood risk. I also support the call to ensure that this information is available to all within the community to assist better land use planning and better assessment of risks for both insurers and those seeking to cover themselves against the risk of flood.

Nothing within this bill is going to do anything that will alter the climate and climatic risks but it will ensure that when the insurers are taking out a contract they can be sure of what coverage they are actually paying for. I commend the bill to the House.

Warren Entsch (Leichhardt, Liberal Party) Share this | Link to this | Hansard source

I rise today to also speak on this bill, the Insurance Contracts Amendment Bill 2011, and to indicate my support for the measures contained within this bill. The bill changes the insurance law to introduce a standard definition of flood contracts. This is something that is long overdue in this area and over many years we have seen despair, I guess, from people who have been subjected to a flood situation only to find that, even though they thought they were covered, they had no insurance cover whatsoever. It was primarily because of the very narrow definition that was used by the insurance companies.

Dick Adams (Lyons, Australian Labor Party) Share this | Link to this | Hansard source

And your government did nothing about it.

Warren Entsch (Leichhardt, Liberal Party) Share this | Link to this | Hansard source

I was going to get onto that one. Back in 2007 after the New South Wales floods and again in 2008 in Queensland, a common definition for floods was put forward by the coalition as an important change by the industry at that time. What happened then is that the ACCC scuttled those previous attempts to introduce such a definition back in 2008 and my colleague and his government on the other side have done nothing at all to progress a common definition up until now. So it is great to see that we are actually moving forward in this area.

The other area we are looking at is there being a requirement that the insurance companies provide consumers with a key facts sheet outlining key information about their home building and their home contents insurance policies so that they can minimise the risk of misinterpretation, if you like, and people can feel comfortable with what they are paying for and that they are actually going to get in a time of crisis what they think they are paying for.

The Social Policy and Legal Affairs Committee did the inquiry on this. About the end of the time they were doing this report it started to become evident that there were other areas where there were some serious issues of insurance failure within the insurance industry. One of those areas was in strata title. Talking to the chair, Graham Perrett, I explained some of the issues we were facing in northern Australia, that while we were starting to get a bit of a handle on some of these issues with flood, up in my area we did not have flood problems, we had cyclone problems. Nevertheless, the devastation is just as profound and if you find you have no cover then the impact on the householder is just as serious. The problem that we were starting to experience up there was that insurance companies were actually withdrawing from Northern Australia. They were doing so in a most alarming manner in that they were increasing premiums to levels that were well beyond affordability. Of course, people could not afford to renew their policies. More and more insurance companies were refusing to insure. Initially, they denied that they were doing that in the area, but I have a letter here from Lumley Insurance, dated 14 February 2012. The letter is to Ms Schmitzer, who lives in North Cairns. The letter basically said:

With effect from 19th October 2011 Lumley Insurance ceased writing Household and Landlords Insurance in post codes 4737 and above.

That, in effect, is from Sarina north. Unfortunately, this is not an isolated incident. More and more insurance companies have been withdrawing their services in Northern Australia, based not on risk but purely on postcodes. It has become a serious problem up there, whether you are trying to get flood insurance, cyclone insurance or any sort of household insurance.

We were faced with another challenge up there with how insurance companies were charging in the area. For example, the insurance premiums for a block of units valued at $10 million in the Cairns region, over a four-year period up until 2011, went from $11,000 to $12,000 to $23,500 to $92,500. You can imagine the impact that that has on families when they are trying to insure. It is also causing major issues in that units are becoming unsellable. We have many examples here where individuals can no longer live in their units. They cannot sell them because of the inflated insurance prices and the rates are greater than any return that you could get in a 12-month period.

As I said, I spoke to the minister and to Graham Perrett, Chair of the House of Representatives Standing Committee on Social Policy and Legal Affairs. They graciously agreed to extend the hearing of the flood inquiry and to include body corporate insurance. They have had meetings up in Port Douglas, Cairns, Townsville and here in Canberra. The committee has done outstanding work. The report will be tabled later this month. I am confident that we will see in that report some recommendations that will extend over and above what we are seeing here in this bill, which will look at affordability of insurance in Northern Australia and also the availability of it.

At Brooklyn Village, a dozen retired couples or individuals are living in what used to be an old mining village. For some reason known only to the council, they decided in their wisdom that, rather than subdivide the individual houses that were there into normal title, they would zone it as strata title. We have a strata title on individual houses, on lots from 1,000 square metres up to 13 acres. But they are all strata title.

Under the current legislation, as it stands, those people have to insure the entire property for replacement value, including the old community hall that is sitting there and has never been used, the disused swimming pool, the tennis courts and a whole lot of things that are part of the village. We also have 12 families living there that cannot get insurance. Of course, it is a major concern for them. Again, this issue was raised at the inquiry. I am hoping that we can find a way whereby we can get the insurance companies back into these regions.

Other areas have been faced with similar crises in recent times—New Zealand and Japan, with the tsunamis, and, more recently and relevantly, in Thailand, with the floods. They are still recovering from that. The Thai government has now taken an initiative to provide underwriting of insurance companies. They have set up a scheme to allow residential and small to medium businesses to get insurance cover for flood. Up to that point you could not get any sort of insurance in Thailand, which was having a major impact. I understand that after the dreadful tsunami—we commemorated the anniversary only a couple of days ago—the Japanese government is looking at doing a similar thing. New Zealand has already implemented an underwriting policy in relation to earthquakes, providing an opportunity for landholders or property owners to buy affordable insurance to give them the security they need.

I know that in the Northern Territory—it is the only one in Australia—the TIO provides an underwriting facility to ensure insurance prices are affordable. There is no point having insurance if individuals or families cannot afford the policy. The other problem is that, even if premiums reduce to a level where they are remotely affordable, companies are putting so many extra requirements on them in relation to excesses that there is no way claims will succeed. So in effect policies are of no value at all.

Have a look at the progression or the failure of the industry, particularly in Northern Australia. I understand similar problems are being faced in the Murray area, and I suspect that with the flooding now going through New South Wales and Victoria we will see similar challenges as they recover from the disaster: affordability and insurance contracting or retracting out of regions continues. When the committee came to Port Douglas, one witness was Mandy Coxon, who has the Mossman Gorge Bed and Breakfast. She wrote a letter saying:

I have never written such a letter before nor have I ever felt I had a need to. However, with Cyclone Yasi we are not entitled to any sort of government rescue package but we run a small B&B. It is very modest. We were making an income of about $50,000 but because of all the economic problems in the area that income has reduced to $20,000 a year, but our insurance premium has gone up from $3,000 to $5,506.

She said that that works out at about 25 per cent of the annual turnover of their small business. It comes to a point where it is not affordable. I spoke to Mandy only a couple of weeks ago and she said that the insurance company which had offered her insurance at the increased price has now said that they are withdrawing their offer. She can no longer get insurance for her small B&B and it looks as though she is going to have to close her business down.

We are seeing the same sort of thing in rural residential, where you are finding people on acreage. If they are not running it as an agribusiness and it is over five acres, most insurance companies are now refusing point blank to insure properties. So there are a lot of properties around the area now which are uninsured. One thing we can be sure of is that over time there will be more cyclones and more floods. The Insurance Contracts Amendment Bill is a very small step in the right direction of recognising that there need to be significant changes in interpretation and there has to be a way to ensure competition remains in the market so that we do not get more of these letters from insurance companies advising that, based purely on the postcode, that they will no longer consider the insurance risk.

While I commend these initiatives to the parliament, I say that it is only a very small step in the right direction. I know more recommendations will come out later this month and I suspect that given the failure of insurance in rural residential and other markets like B&B there will be further requirements in relation to reform, so that affordable and effective insurance can give people peace of mind and security, which they need to protect their assets, so that people do not become homeless with no chance of ever replacing their life savings. I commend the bill to the House.

Sitting suspended from 13:01 to 16:31

Dick Adams (Lyons, Australian Labor Party) Share this | Link to this | Hansard source

In 2010-11, there were a significant number of natural disasters in Australia: Queensland, New South Wales, Victoria and Tasmania all experienced severe flooding. For two years in a row now we have had extremely wet conditions and a lot more flooding in Queensland, Victoria and New South Wales. The number of people adversely affected by these natural disasters as a result of inadequate insurance cover has highlighted the level of consumer confusion about what is covered in insurance policies, in particular the extent to which policies provide cover for flood and what cover for flood means.

On 5 April 2011, the government released a consultation paper entitled 'Reforming Flood Insurance: Clearing the Waters' in order to engage the community in suggesting improvements to the regulatory framework and other aspects of Australia's insurance market. The paper contained two key proposals designed to improve clarity for consumers in relation to insurance policies and, in particular, the cover provided for various types of flood—namely, a standard definition of flood as well as a key facts sheet, the KFS, to outline the key information in relation to home building and home contents policies.

The Insurance Contracts Amendment Bill 2011 implements those proposals. The main points in this bill cover the standard definition of flood, which, hopefully, will reduce consumers' confusion regarding what is and what is not included in insurance policies and will avoid situations where neighbouring properties affected by the same inundation event receive different claim assessments because the policies covering them, where they exist, use different definitions of flood.

Compliance costs will be incurred by the industry for reassessing and rewriting policies. Industry has also indicated that a standard definition could result in repricing policies or in products being withdrawn, as those policies might provide greater coverage for flood, but at least this will be known to the consumer and they can take action to mitigate the risk. Either way, it will help both the insurance provider and the consumer to be more informed. Of course, this brings in the situation of where we build, planning laws and issues in relation to insurance. The key facts sheet, by outlining key information in a concise form, will provide increased simplicity, consistency and comparability for consumers where they are making decisions regarding the purchase of the HBHC insurance policies. The key facts sheet will also facilitate more effective decision-making through an increased level of familiarity: knowing what to look for and the meaning of certain words and concepts. While the actual wording for 'flood' included in regulations will be subject to consultation, it is expected to be consistent with the wording proposed by the government's consultation paper Reforming flood insurance:Clearing the waters. The proposed wording is that 'flood' means the covering of normally dry land by water that has escaped or been released from normal confines of any lake or any river, creek or other natural watercourse, whether or not altered or modified, or any reservoir, canal or dam. There is still work being done on these words, but I believe this will be the background definition that will be part of the regulations currently being revised.

Insurance providers are required to use a standard definition of the term 'flood' when using the word 'flood' or other parts of speech or grammatical forms of that word, such as flooding, in the prescribed contract, or the notice or other document or information, as provided in those regulations. If the definition or meaning of the word 'flood' or other parts of speech or grammatical form of that word, such as flooding, is different from the definition of the meaning of the word 'flood' provided in the regulations, the prescribed contract will be taken to have the meaning of 'flood' as provided in the regulations.

During the times of the floods in Tasmania in my electorate of Lyons—mainly in early 2011—we had great confusion among the insurance companies, who could not decide what was a flood and what was not. It made it very hard for people to claim anything and even harder for them to mitigate risk into the future. People just did not know what the circumstances were.

Tasmania did it hard during the debate about public liability insurance as well, as there was a great deal of misinformation floating around at the time. The insurance industry failed on both of those occasions to be on the front foot, looking at what the consumer needs were and meeting their needs. It took a while before something could be done to allow small groups to stage events and be able to afford public liability, but it was a tangled web to get through and it took many community organisations in my electorate a long time to work their way through this—and some were lost in the process.

It is the same with floods and other natural disasters. If people can assess their risk and are able to realise what could happen given a series of circumstances then they can do something, but when they run blind on how insurance companies operate or what meaning certain words have then everybody loses, most of all small clients who can least afford it.

The report of the House of Representatives Standing Committee on Social Policy and Legal Affairs entitled In the wake of disasters was timely and covered a lot of the heartbreak that occurred during the 2011 floods, and hopefully will help those people still struggling in the floods this year. Those recent problems and floods have taken a large toll on people and entire communities—there is enormous trauma that comes from significant or total destruction of one's home, its contents, the businesses that people run and the loss of stock or the loss of pets through flooding. On top of this, affected residents have to deal with the disruptions to work, school, social networks, accommodation, health and transport. Trying to sort out insurance on top of all of this and trying to work through the processes you are required to when collecting insurance when there is a lack of information is soul destroying for individuals. I saw that during the floods in January 2011 in Tasmania. We need to go on funding services to assist communities with the practical aspects of rebuilding lives and we need to fund financial and emotional counselling. We must also ensure that insurance cover is seen as a part of the process. It should be possible to start sorting out one's life if there are guidelines that are easy to follow and an understanding of what insurance can cover and what the community can do to help those exposed to uninsurable events. This is not something new, but extreme events are becoming more common in this current climate cycle and people need to be aware of those problems.

I remember some of the problems that occurred in my electorate in the township of Railton in the municipality of Kentish. The river behind one particular house rose. Flood waters came up. That was seen as a flood. The water coming out of the storm water drain on the road side was not seen as a flood. And these waters rushed into the gardens and the houses along that street. Then there was an argument about who was insured and who was not. Different households were with different insurance companies. Sometimes the same insurance assessor was used by different insurance companies. The assessor made the arguments. But the companies made different decisions about what insurance was going to be paid. This confused people and made them very angry. It was very bad for the industry. They need to be on top of that.

Coming back to the issues, sometimes it does not matter how good a plan you use. You can still run into problems. But with the high-tech spatial stuff that we have today you can certainly plan a lot better. This will help municipal planners to decide where we can build as they will see where river courses are and where the water runs. If we could document all the history that we already have sitting around, that would give us a great deal of help in being able to put in place a proper process for urban planning in the future. Some places where we should not build will show up. If somebody wants to build there and take the risk, then you could offer them the opportunity to do that. But they would not get insured. As long as everybody understood that and got it, that would be okay. It is not good calling foul if you have built somewhere dangerous. And that goes with fires as well. We need to be a lot smarter about where we let people build and about how we look after fire-prone areas.

Where people build is defined by planning laws. I remember that in my home town of Longford there was a back creek, which ran into the South Esk. The planning for this town was defined by the 1929 flood. The 1929 flood was a very large flood in northern Tasmania. A king tide in the Tamar River came right up to Launceston, flooding all of Invermay, with a lot of that area inundated and put totally under water. The South Esk backed up right into the hinterlands and the township of Longford was totally inundated, with the back creek also catching a lot of rainfall from the mountains. Those flood levels defined where you could build in that town. It was not until recent years that mitigation through building a flood levy changed that. Now a new regime is operating. That town has a very fine school, fine clubs and two chemists and it should have the opportunity to grow and meet people's building needs. The importance of the insurance industry, which I mentioned earlier, goes back to those days of liability.

Also, on this occasion I take on board that in crises like those we have seen in New Zealand and in Japan the insurance industry—which is a very important industry for any community—would need help to look after those things, but in the normal circumstances that we have been experiencing in this country those industries should be much more advanced in where they are going to be into the future. When we start thinking about climate change and some of the issues that can come out of that, I believe that the industry needs to be on the front foot, not on the back foot, where it has been for some time. I also believe that improved spatial technology should allow us to do a lot more in being able to get our municipal planning into some level where people are not building on flood plains and where we can overcome many of these problems into the future. I do not say that we can overcome them all, but we should be able to overcome many.

So I believe this bill is the start of the process. There is much more we can do to allow and get insurance companies to do their work better and to be proactive but to ensure that there are fair parameters under which to work, much as we did with the public liability. I believe that this bill will do that and that it gets us there. It is certainly a bill that gives us a good start in sorting out some of the basic problems, which included the definitions around flooding. I support the bill.

Ewen Jones (Herbert, Liberal Party) Share this | Link to this | Hansard source

I would just like to say to the previous speaker that, when the creek flooded and it was going into the South Esk, I just hope that the water quality going through to the Boag's brewery, with waters from the North Esk River, was still in pristine condition. It is very important. The North and South Esk Rivers are a national treasure, and Boag's premium is of course one of the great beers of the world.

I rise to speak on the Insurance Contracts Amendment Bill 2011. This bill changes the laws governing insurance in the wake of the 2010 and 2011 floods throughout parts of Queensland, New South Wales and Victoria. The coalition does broadly support this bill. We recognise the insurance problems that the natural disasters around the country exposed and created and we will give our support to these measures and help address them. We are, however, concerned with the implementation of the changes being made in the bill.

Specifically, this bill will introduce the standard definition of flooding for insurance contracts. This will address the problem that arose following the season of natural disasters where residents, many having lost everything as a result of flooding, discovered that their insurance did not cover them because different policies defined flooding in different ways. We saw the birth of a new word with 'inundation' when it came through. I had never lived through an inundation. When I was a kid in my home town of Texas, we only ever had floods. This created confusion and lack of understanding for policy holders, but creating a standard definition means there will only be one interpretation for flooding wherever it appears in the insurance contract. This is a measure that the insurance industry and the coalition have repeatedly supported over the last five years following other flooding disasters, and it has taken until now for this government to push this through.

This bill introduces a requirement for insurance policies to come with a key facts sheet. This key facts sheet is supposed to help consumers better understand prospective policies and be able to more easily compare and asses their options. While industry broadly supports this idea and in fact many insurers already provide something similar, we are still weighing the draft requirements of these. In the retail side of the motor vehicle industry, there used to be a thing when a friend of mine had a Ford dealership in Townsville. He said his first dealer arrangement was with Esanda and it said, 'We the undersigned agree that Esanda takes a lien over everything in this lot with the following exceptions,' and it was a two-foolscap-page document which covered the arrangement between him and his finance company. The last one I delivered to him when I was working for Capital Finance was about 400 pages long. That is where we have gone with this. It is not the government's fault, but it is the nature of litigation in this country that we are pushing these things. It is important to note that this bill only provides legislation that will enable these proposed changes to take place. While the coalition agree in principle with these changes, we will be waiting to see the changes in their legislative form to get a better idea of how these measures will be rolled out.

While we in North Queensland may not have experienced the flooding that has taken place in South-East Queensland, New South Wales and Victoria, we did suffer through Cyclone Yasi, one of the worst cyclones to hit the region in close to a century, and surely the biggest storm that this country has ever seen. Since that disaster, Townsville residents have been plagued with insurance problems, from companies pulling out of their North Queensland market to skyrocketing premiums. Townsville residents have been left wondering how they can pay for insurance cost increases on top of the rising cost of living that this government has presided over.

For Townsville, one of the biggest problems has been an increase in strata title insurance. I have had numerous people living in apartment complexes coming to me and complaining about the astronomical increases in body corporate insurance that they have been forced to swallow. Do not forget that the thing about strata title insurance is that with house insurance you can take a punt that you are not going to get a fire and no-one is going to chase you up, but not having strata title insurance is against the law and you are criminally liable under the strata title act; you must have this strata title insurance. Many of these concerns were heard at the strata title insurance inquiry that recently visited Townsville for a public hearing, and I would like to pass on my thanks to the member for Moreton for his proactive actions in bringing that inquiry to Townsville and Cairns. I would also like to thank both him and the member for Blair for the way they conducted that inquiry, especially the bits I saw in Townsville. It was clear to me that they were actively looking for answers, and I hope that their final report will reflect the sincerity and concern expressed to them by the attendees.

The attendees at the meeting in Townsville were predominantly self-funded retirees and pensioners. They are the ones who are most affected by these problems, and they are the ones who can least afford them and have been forced to cop these huge premium increases. We have asked them to come to a unit building as a cheaper way for them to see out the autumn of their years. They have to survive on a set income. They cannot cope with premium rises of nearly 700 per cent. They also risk the reduction of their capital base. If the unit dwelling becomes unaffordable and there is a market issue with too many properties on the market, the unit price will drop, making their lives more unsustainable.

Tom and Tina Pietzsch attended the hearing. They are self-funded retirees living in one of three apartments in a unit complex. The only shared facilities in the complex are a pool area and a lift. In 20 years the complex has made two claims—a small one after Cyclone Larry in 2006 and a slightly bigger one after Yasi last year. They have seen their premiums triple to $15,000 in one hit from before Yasi. When this was added to the maintenance and other costs that the body corporate fee needs to pay for, living in a unit suddenly became unattainable for Townsville residents.

I spoke to the widow of a friend of mine. She is living in a modest unit in North Ward, which is a central suburb in Townsville. Her concern was not so much how she could afford the huge increase in premiums. She does not have the option. She has to be able to afford it. She has no option. Her only option was to consider which foods she could do without. That goes into play in things like the health debate. We are talking about older people here, living in these things, who are going to end up not being able to survive or who will suffer health deterioration in a hospital. These are the things that people have to go through.

I also spoke to Mick Price, who is a mate of mine, about insurance in Townsville. Mick lives in a two-level apartment complex on the marina in Townsville. Over just three years, his body corporate insurance bill has risen some 690 per cent. Over those three years, his body corporate insurance premiums have risen from $27,000 to $187,000. In anyone's language, that is simply unsustainable. Part of Mick's problem is that there is simply no flexibility in the way they insure. They have three buildings which housed the unit dwellings. They have another building which acts as a garage and a shed for the complex. If they had the option to not insure the whole but to flexibly insure parts to different degrees, he would be happier. He would like to see flexibility over what products he could take. Being on the marina, they have absolutely no need for flood insurance, but they are still getting billed for it. When we have this problem with insurance costs in North Queensland, we need to be working with the industry to make these changes that could help bring premiums down. He would countenance an increase in excess—not to the extent of $250,000 but to, say, $20,000—to help lower that cost burden. I know that insurer Zurich said that for every dollar they received in premiums they paid out $1.15. So somewhere along the line someone is taking advantage of the system. If you increase the excess it will take away those things where people are claiming for fans, blinds and all those silly things that in the normal course of events you would not do.

I spoke also with Melinda Holborn, who lives in a block of townhouses on the banks of the Ross River. They went through Cyclone Yasi without the loss of even a fence paling. Still they saw in one year their insurance premium rise from $14,000 to $81,000. They shopped around and were able to get the price down to just over $50,000, but the pain is immediate and severe. Again Melinda wants to be able to insure with some sort of flexibility. Where she lives they have a tidal riverfront which is protected by two weirs and a dam, yet they are seen as high risk due to being a river frontage property.

I believe in markets. I do not want to see government intervention here. I believe we are seeing a short-term reaction which plays into the world market. I believe that as the financial markets contract worldwide underwriters will leave the market, making funds scarce. To compensate, insurers will have to raise the return on the investment to make it more attractive. Put these things together and you have rising premiums. I believe that the market will make a decision on the viability of the North Queensland body corporate insurance market. I believe that very soon some guy somewhere will be looking for margin and market share. They will look at the North Queensland market and decide that they should be getting some of this market and they will come in at a discounted price. I do not believe that CGU, which is the only company which is currently offering body corporate insurance to larger dwellings, should be vilified for raising premiums. I think they should be thanked for still offering a product. It is the big insurers of Queensland, and in particular Suncorp, who have made their commercial decision to leave North Queensland. They are still taking our car insurance, life insurance and home and contents insurance. They have just left this part of their portfolio. I would like to call on all North Queenslanders to weigh up their insurance and banking decisions with this in mind.

After 2011 proved to be such a horror year of natural disasters in Queensland and other parts of the country, a natural disaster insurance review was commissioned just over 12 months ago. Recommendations were received in September. After six weeks to consider these recommendations we have now seen this government defer 39 of the 47 recommendations that were made. Their biggest decision so far was to commit to further reviews. We have seen detrimental flooding come once again this year and we still have not seen much progress made on the lessons learned from the last lot of flooding. This government needs to get its act together and take decisive action on the review's full recommendations. The more we continue to delay, the more natural disaster victims we will have who cannot benefit from the lessons of past disasters.

Most people out there say they simply do not understand what is going on. They do not understand why their premium has risen so much. It would help if someone could give them a reason. But the people who come to my office are not making claims. It is not as if they have been making spurious claims. Cyclone Yasi came through Townsville and was basically a category 2.5. It was a big storm and I am not trying to belittle anything. There were lots of trees down but we did not cop anywhere near what Cardwell and Tully did. Those guys are the ones sitting there telling me that they just do not understand. They ask, 'Why is it that we are copping it in the neck at this very moment?' No-one can give them an answer. The insurance company says it is reinsurance. Nobody seems to be able to understand what is going on. We have asked people to move out of their family home into units on a fixed income and it is simply unsustainable. Those are the people we have to worry about because they are the ones who will be the collateral damage.

I support the measures taken in this bill, though it remains to be seen how successful the implementation will be. The natural disasters of the last 18 months have brought about many problems with insurance policies. While it is good to see measures being taken to address concerns associated with flooding, insurance problems are continuing to hurt North Queenslanders. I will be closely watching the government's response to the outcome of the strata title inquiry and doing whatever I can to ensure that this government and the insurance industry are working towards a solution. As I said before, I think the member for Moreton, who is heading this inquiry, has done a fantastic job and has come at this at the right angle. But we want to see what actually happens when the decisions and the recommendations have to be made. Thank you very much to for the opportunity to speak on this bill.

Wyatt Roy (Longman, Liberal Party) Share this | Link to this | Hansard source

When the floodwaters rose in my electorate in January last year there was an overall sense of fear, uncertainty and panic in my community. The waters came up so quickly that in some circumstances there was very little time for evacuations or preparations. But for all of the fear and all the uncertainty surrounding the floods themselves it was the aftermath that has struck at the hearts of thousands of Queenslanders, including many living in my community. After the waters subsided, unmistakable genuine dread, panic and frustration set in. In the days following the tragic Queensland floods of 2011 my office was inundated with calls from concerned local residents who were unsure whether they were covered by insurance and what they needed to do to find out the truth from their insurance providers, who at the time seemed to be less than forthcoming with the relevant information.

For these people, who had lost all of their worldly possessions, the fear and uncertainty as they waited for judgment on whether they were covered by their insurance was paralysing. In some cases this fear was justified. Many who had thought that they were covered by their insurance simply were not and were instead left to the mercy of the community to come to their assistance. It is for these families that we are here today to debate the Insurance Contracts Amendment Bill 2011.

This bill introduces two measures: a standard definition of 'flood' for insurance contracts and a requirement of insurance providers to provide key facts sheets to consumers taking out home building and contents insurance policies. In January 2011 many individuals were left without insurance coverage when they had mistakenly assumed they would be covered—all of which could be put down to mistaken understandings facilitated by the use of compound, complicated phrases which, without experience in the insurance industry, seemed almost impossible to decipher the true meaning and extent of coverage for flood incidents.

The confusion experienced by people in my community was not an isolated incident. It was not isolated to a particular insurance provider or just to our community. In fact, individuals across the country were confused. The devastating floods that this country faced demonstrated that the existing regulations governing insurance contracts were insufficient and inadequate for the people of this country.

The disturbing and disappointing reality is that the lack of a common definition for 'flood' was first highlighted as an issue back in 2007. Yet it has taken nearly five more years and a series of devastating floods across the country for those across the chamber to give this issue the importance it deserves and to start to make some progress towards a solution. Even the insurance industry itself, which was pushing for a standard definition, was unable to encourage this Labor government to pursue this issue with the stamina and commitment it deserved. No, this government's resolve wavered at the first hurdle when initial plans to introduce a common definition were scuttled by the ACCC.

Those on the opposite side of the House let this issue lay dormant until they received the resounding wake-up call of the 2011 floods. It was not until the wake-up call of last year's floods, and at the insistence of this side of the House, that this Labor government finally took action on this issue. In March the National Disaster Insurance Review was commissioned and in April consultations began. But, when the review's recommendations were received by the government in September, instead of taking immediate action on the recommendations, the powers that be held back the release of the review until November, thereby preventing any genuine action before the start of another Australian wet season and the floods that we have again seen across this country.

More disappointing still was the government's decision to defer decisions on 39 of the total of 47 recommendations of the report. It would seem that the only tangible, solid action that this government was willing to take was to commit to still further reviews. In marked contrast to those opposite, the coalition has always stood for action and has consistently sought to achieve a standard, universal definition of 'flood' to be utilised by all insurance providers in their contracts. We on this side of the House support the recommendation of the natural disaster insurance review, that the government should introduce a standard definition of 'flood' in order to avoid any consumer confusion surrounding flood coverage within insurance policies. The final report recommends that the definition of 'flood' be:

... the covering of normal dry land by water that has escaped or been released from the normal confines of:

(a) any lake, or any river, creek or other natural watercourse, whether or not altered or modified; or

(b) any reservoir, canal or dam.

We on this side of the House support this standard definition for floods across the entire country and across every insurance company.

After the devastating floods of last year, I held extensive community consultation both online and in person with stakeholders and affected locals in my community. This consultation revealed the desperate need to address the lack of a standard definition of 'flood'. One of the many people from my community that I spoke to told me, and I quote verbatim:

The government needs to look into the wording of what a flood et cetera are in insurance companies as most people are only now finding out what their policy really means to them.

This was one of the many desperate cries for help from my community. Yet another was from a local resident of Mary Street, Caboolture—one of the worst affected local streets during the flood. Despite having been insured with the same company for 26 years and being under the impression that he was covered for flood, this gentleman's insurance claim after the flood was declined. The ambiguity surrounding whether the flood was a flash-flooding event or a riverine-rising event means that he sadly discovered that he would not be covered for the damage to his home. One can only imagine the desperation that this gentleman and his wife felt upon receiving this news. I can only imagine that this surprising and devastating news would not have been needed to be delivered if this Labor government had been more proactive in making changes to insurance contract laws when concerns were first raised in 2007.

It was the compelling testimonials and broader community feedback that were the motivation for me to make a submission to the commission of inquiry into the Queensland floods. In my response to the commission of inquiry, and based on the extensive feedback that I received from the community during the community consultation that I conducted in my electorate, I recommended that a standard definition of 'flood' be developed by the Insurance Council of Australia and applied by all insurance providers and that policyholders be provided with information about their level of cover in plain English.

My community has experienced firsthand the importance of a single universal definition for the word 'flood' and the confusion experienced due to the many and varied definitions of flood in insurance contracts. The outcome of the confusing jargon so often used in insurance contracts has in some instances shattered the dreams of families who have lost everything only to find that their insurance did not cover their losses. For those who were left without insurance coverage, my local community did an excellent job, and I thank the countless individuals who did a wonderful job in facilitating delivery of emergency goods and assistance to the many families in my region.

This standard universal definition will provide clarity to the many people in my electorate when planning their future insurance. Those residents on Dale Street in Burpengary will have greater certainty when taking out insurance policies. While this may not be a solution to the poor planning decisions that have gone before, the regulation of a standard definition of 'flood', will allow them to make informed choices about whether they take out flood coverage. Sadly, for some in my community these measures have come too late. But unless a standard definition of 'flood' is created and used now, many more will suffer the same fate as those in my community did in January last year.

The second measure that this bill deals with is that of the key facts sheet. It is the intention that this bill will require all insurance companies to provide consumers with a key facts sheet about their policy. This is a commonsense measure that will enable consumers to effectively compare apples with apples when it comes to their insurance and give them every opportunity to make an educated and informed decision regarding their home and contents insurance. In an industry that has been fraught with confusion and ambiguity, evidence of which has been seen in the way the flood related claims have played out over the past 12 months, measures to increase transparency are important, if not essential. Unfortunately, the draft requirements for the key facts sheets have not yet been released. However, the minister has indicated that they will be put through rigorous consumer testing before the final regulations are decided upon. It is absolutely critical that this process of consumer testing be adhered to. The purpose of the key fact sheet is to help consumers to make informed decisions about their insurance products. The ability of the key fact sheets to be an effective tool for informing consumers will depend on the content that is required to be included. If this is not thoroughly tested and vetted to check that it is achieving these goals, this measure will not reach its potential.

It is important that this measure delivers an effective result for the consumer so that we do not see a repeat of what we saw last year. Although I rise to speak in support of this bill today, I have concerns about the implementation of the two measures that this bill seeks to add to insurance law. It is important to note that this bill will merely enable changes to be made to the Insurance Contracts Regulations. The regulations of these two measures are not controlled by this bill and there is concern both by industry and on this side of the chamber about the uncertainty left by this bill. Until we see the regulations themselves and know how these measures will be enforced under the regulations, it is difficult to assess the adequacy of the measures. It is absolutely imperative that more time is not wasted—that Australians have the benefit of both a standard and a universal definition of flood and the advantage of a key fact sheet from insurance providers in order to enable them to easily compare insurance policies. It is in this vein that I support this bill.

Bert Van Manen (Forde, Liberal Party) Share this | Link to this | Hansard source

I too rise to speak on the Insurance Contracts Amendment Bill 2011. This bill proposes to change insurance law to introduce a standard definition of flood in insurance contracts and a key fact sheet to give people more and easier-to-identify information on their home and building contents policies, and to enable them to compare different policies from different companies.

I think it is worthwhile at this point to look at a bit of the history of this measure. The Insurance Council of Australia originally proposed a standard definition of 'flood' in 2008 following the New South Wales floods of 2007. The initial proposal by the Insurance Council of Australia was subsequently rejected by the Australian Competition and Consumer Commission following concerns raised by various consumer groups. In its statement, the ACCC encouraged the consumer groups and the Insurance Council of Australia to work together on the development of a common definition of flood which would make it easier for consumers to understand what the term means.

Before we get to the actions—or, should I say, lack thereof—of those opposite and this current government, let us look at what our wonderful consumer advocate groups have done. It appears that these consumer advocate groups have failed to follow up on the ACCC's encouragement to work with the Insurance Council of Australia to develop a standard definition of flood for insurance policies. If this is the case, and I have been led to believe by the Insurance Council that it is, then these so-called consumer advocate groups have let down the very consumers whose interests they are supposedly representing or protecting, which has contributed to costing these consumers tens of millions of dollars in the process. Equally, as I just mentioned, the current federal Labor government has done nothing to progress a common definition of flood after the ACCC scuttled the industry attempt to introduce a definition in 2008. It is interesting when you compare the wording of that proposed definition with the proposed standard wording in this bill. There are far more similarities than differences.

It has taken the disastrous floods in Queensland, New South Wales and Victoria and Cyclone Yasi in 2011 to finally get those opposite to act and realise the seriousness of addressing the issue for the victims of flooding. It has become even more relevant in the past week and a half, when we have seen flooding in southern New South Wales and northern Victoria. The government's initial step following these disasters was to commission the Natural Disaster Insurance Review in March 2011. The review recommendations were received by the government in September 2011 but were not released until November 2011, and they contained some 47 recommendations. In a stunning case of déjà vu, we remember the Henry tax review. Despite having six weeks to consider the recommendations, the government has deferred decisions on 39 of the report's 47 recommendations. In fact the government's biggest decision was to commit to further reviews. I wonder how those who have been flooded are feeling about that.

At least we now have something on the table. But this is only enabling legislation, creating the mechanism by which the regulations can be drawn up by the minister to be inserted into the Insurance Contracts Act. There are some questions as to what the wording of the regulations will be. The question now becomes: when will these regulations be announced to provide consumers and the insurance industry with much-needed certainty? I have been advised by the Insurance Council of Australia that at least five insurers have announced that they have or will be introducing standard flood definitions in their policies, and they are looking to do so in good faith in anticipation of the fact that the regulations, when introduced, will honour the key points outlined in this bill. Once again, this demonstrates the capacity of business to deal with community concerns.

This bill seeks to define the standard definition of flood, along with restricting the use of compound phrases including words such as flash flooding or accidental flooding. I think that is a very good step because there is much confusion about what the definitions in current household contents policies actually say. If I have a look at my policy, I find you need to almost be a lawyer to understand it. I am fortunate that I do not live in an area that is likely to be flooded. If I do get flooded, there will be a lot of people in a lot of trouble. However, the legislation before us today does not require all insurance policies to insure against flooding. People still need to be very mindful of what they are actually getting in their insurance policies, and that is part of the importance of the key facts sheet. The definition proposed is:

'Flood' means the covering of normally dry land by water that has escaped or been released from the normal confines of:

(a) any lake, or any river, creek or other natural watercourse, whether or not altered or modified; or

(b) any reservoir, canal or dam.

Any standard definition will not benefit current flood victims as it will only take effect once this legislation is passed and the regulations have been inserted into the Insurance Contracts Act. As the member for Longman has pointed out, the industry supports this change along with the proposed key facts sheet; however, there are still concerns about the final version of these regulations. The key facts sheet is meant to provide consumers with key information to allow them to more easily understand and compare insurance policies.

In 2012, we saw renewed flooding in Queensland, New South Wales and Victoria. As the minister was quoted saying on the ABC several days ago, already some 8,000 insurance claims totalling around $64 million have been lodged as a result of the latest flooding and, as the minister rightly pointed out, this figure will only increase. As we debate this legislation, there are still towns in Victoria and New South Wales who are affected by flooding and homeowners are still looking to sandbag and protect their properties. But it is not only homeowners; there are many small businesses in these small country towns that are also being affected. These latest natural disasters serve as a reminder of how vulnerable we all are to nature's vagaries. We need to ensure that we do everything that we can to protect ourselves and the community during these times. It is predominantly through the use of insurance in this modern age that we look to do that. That is why it is so important that these changes to the Insurance Contracts Act to provide this standard definition and to require insurers to provide a key facts sheet are introduced as soon as possible to give everybody certainty about what their level of cover is.

One of the key concerns for me, though, is that this standard definition of flood cover is being introduced after flooding events have occurred. What effect is this going to have on premiums? We have already seen or heard of instances in which there have significant increases in premiums as a result of properties being in flood-affected areas. In a time when people's living costs are going through the roof, these increased premium costs are only going to make it more difficult for people to maintain their policies. That is another reason why these issues should have been dealt with four or five years ago when the problems first arose. If that had been done, potentially the costs of the policies would have been more manageable.

While the floods last year had very little impact on my electorate, I remember the 1974 floods and the devastating effect they had on my community at that time. Two houses in my street were washed away as a result of that flooding. I saw the effect that had on the families involved. I was also involved in cleaning up other houses in the community that had been inundated. As former senior flood forecaster for the Bureau of Meteorology Geoff Heatherwick stated in the Courier Mail yesterday, it is important to remember that these past floods can and will occur again. It is only a question of when.

There are other issues to do with properties being flooded, such as town planning and development decisions. Our councils and state governments have a significant requirement on them to have a look at their policies and processes in this regard.

As my colleagues have stated, the coalition is supportive of these amendments. However we maintain our concern about whether what is outlined in these bills before us will ultimately be reflected in the regulations. Australians want certainty and the government must act now to ensure that the recommendations that have had their implementation delayed or deferred are addressed as soon as possible. There should be more than plenty of motivation in light of recent disasters to warrant a speedy resolution to this matter. The coalition await the final regulations as we want to ensure that they provide the certainty and the clarity that are required so that all parties to insurance contracts have confidence, especially the purchasers of home and contents insurance policies.

Steven Ciobo (Moncrieff, Liberal Party) Share this | Link to this | Hansard source

I am pleased to rise to speak on the Insurance Contracts Amendment Bill 2011. This is a bill that I had some involvement with in my capacity as deputy chair of the House of Representatives Standing Committee on Economics when the committee undertook a short inquiry into the operation of the bill. The issue is, as we have all heard from many contributors to this debate, a country that is fraught with extremes. Extremes in nature occur on a regular basis. In this past two months alone in my city of the Gold Coast we have seen very significant falls. Flooding occurred only a week ago through large tracts of the Australian countryside. People's lives have been put on hold; people's livelihoods have been put on hold. People's homes have been directly affected and impacted upon by flooding. The issue is what can government do to assist. Following the tragic floods that took place in the summer of 2011, when we saw devastation across so many parts of Australia, in particular in Brisbane, Ipswich, and in parts of Victoria, we know there were many people who thought that they were adequately protected and covered by flood insurance only to, horrifyingly, discover subsequently that they did not have flood cover, or at least not be covered for the incident that occurred to them.

When this bill came before the House of Representatives Standing Committee on Economics, it was a chance to explore in more detail the way the bill would operate to alleviate the concerns that people had and to provide surety and certainty that their insurance would provide them with the benefit of that cover should their home or otherwise be flooded. What quickly came to pass though was that this bill is effectively nothing more than what is known as colloquially referred to as a coathanger bill. It is a bill that pushes through principle only, and it is a bill that does not contain the actual important information—and in fact that will be deferred to being passed in the regulation. So we have a bill that is, for all intents and purposes, next to useless when it comes to providing certainty for people who are wondering whether or not they have got adequate flood cover, and what exactly the word 'flood 'means in their insurance policy. This an easy fix. The fact is the government has been sitting on information now for a matter of years about how they should best deal with issue of flood. The fact is that the government could have incorporated a definition of the word 'flood' into this bill and not have deferred the matter to regulation.

What is clear is that industry and stakeholders have been yearning for clarity around this issue in their consolations with government and with Treasury. As part of the roundtable inquiry that the House of Representatives economics committee undertook, there was significant discussion around whether industry was confident that the final version that we will see in the regulation will mirror industry expectations, and provide certainty and clarity of the type that was sought. What is also clear is that concerns were raised as well with the operation of the second element of the bill which deals with the key facts sheet that would need to be issued as a consequence of the passage of this legislation.

In both instances, although we are supportive of the bill insofar as it is a pathway to providing surety and clarity, we are disappointed that this information was not contained in the legislation itself. Given the significant period of time that has elapsed since this whole journey began, it is obvious that there would have been opportunity to incorporate that information into the bill. I note in particular the supplementary remarks made by the member for Higgins, the member for Wright and me with respect to the committee's recommendations that the bill be passed. Although, yes, we certainly were supportive, as Liberal members of the committee, we stated we:

... cannot ... agree with paragraphs 2.50 and 2.51 of the report that outlined assurances that outlined assurances the Department of Treasury was engaged in constructive dialogue with industry and consumer groups; as well as the observation that there were 'no points raised in submissions or at the hearing that the Treasury was not already across or was taking steps to consider solutions'.

The reason we focused explicitly on rebutting those two paragraphs was that that was not clear, it was not plain and it was not apparent. The reality is that a number of comments were made by industry stakeholders that actually ran quite to the contrary. Very clear statements were made that it depended on what was actually contained within regulation and that that would dictate whether industry, and indeed consumers, would be better off. Statements were made, during the inquiry about the definition of flood and the impact of it. The transcript states:

Mr Ciobo: Wasn’t that the entire point of this bill—

to define floods?

Mr Anning: Not the actual definition of flood. That is subject to the discussions under the regulations.

Mr Ciobo: So, we actually have no clarification yet of what the impact of this would be on potentially thousands of people …

Mr Anning: … I guess the point is we are not at the point of having the clarity to even form a view.

So if that does not underscore the extent to which there is industry confusion and apprehension about the operation of the regulations of this bill then I do not know how it could be more plainly put. The reality is that all Australians want to have some certainty with respect to flood insurance. In my electorate of Moncrieff, based on the Gold Coast, I have literally hundreds if not thousands of homes that sit on the waterfront. I have so many homes that are placed upon canals, placed upon rivers, and owners that question whether or not there is actually going to be an impact if a flood were to go through. Of course the great flood that people of the Gold Coast still talk about is 1974 flood. People in Brisbane used to talk about the 1974 floods until the 2011 floods. The Gold Coast was spared and had the good grace and good fortune of not having the devastation we saw in Brisbane in 2011. That notwithstanding, people still talk about the 1974 floods and the 1974 flood levels. In this respect, it is obvious that people want definitions and clarity around the word 'flood' because it has direct impact on their coverage.

Take, for example, a home that is situated on a canal. There would be word games played under policies previously where, if as a consequence of rain, there was a flood coupled with a king tide that actually pushed seawater back in the canal estate and caused water to go into the home, whether it was freshwater or salt water would actually determine whether or not your policy was in place—whether or not you have coverage by virtue of the fact that it was seawater or freshwater.

These kinds of examples of hairsplitting ultimately caused the problems that have led to the quest for a common definition of the word 'flood'. In this respect it is clear that we join with the government in wanting this issue to be resolved. But, again, I restate our concern that this was not resolved within the bill and now once again has been deferred to the regulations—something that is still going to take some time to come forward.

The second element of this particular bill deals with the issue of the key facts sheet. The key facts sheet is of itself a good idea. A key facts sheet provides a high-level summary of the information contained within the policy and the operation of policy for the benefit of consumers. It is not, however, a replacement for the policy itself. It is important that not be held out as being the case, because people need to understand that they can look at a key facts sheet to achieve exactly that—the key facts—but not to have a comprehensive understanding.

There are also a number of housekeeping matters that were raised before the House of Representatives Economics Committee inquiry, which Deputy Speaker Leigh would be very familiar with, which dealt with the issue of the operation of the key facts sheet and whether or not the key facts sheet would need to be sent out to consumers for each and every additional alteration to the policy document, or whether it could be, for example, an annual event. Again, there is no clarity around these issues because these issues ultimately are dependent upon the passage of the regulations. For us as an opposition trying to hold this very poor government to account, the fact remains that we are required to now sit idly by and wait for Treasury to undertake its consultation and for that information to be contained within regulations, which would then presumably be subject to a disallowance motion. So for those reasons we think this is particularly poor form the government's part and we think it is not a particularly good way to provide good governance and certainty to industry, stakeholders and to consumers. I will confine my comments to those. As I said, we do support the passage of the bill, but this could have been a much, much better effort.

Sophie Mirabella (Indi, Liberal Party, Shadow Minister for Innovation, Industry and Science) Share this | Link to this | Hansard source

I rise to support the Insurance Contracts Amendment Bill 2011 and do so with great degree of disappointment and without overwhelming enthusiasm. I think on the whole most of what is contained in the bill is a step in the right direction, but there is such a deficiency of actual substance to it that it will provide little comfort to those people who have suffered during the floods and who want greater clarity.

I also think that the Minister for Financial Services and Superannuation unrealistically raised expectations in the wake of the January 2011 floods. Those who had hoped for real, substantial measures have been badly let down, because of course, as has been said by previous speakers, and most eloquently just before me by the member for Moncrieff, the devil is fundamentally in the detail—in the regulations that will accompany this bill. All of us, not just members of the opposition but those Australians out there who are wanting to know what the government policy is, will have to wait until those regulations come out. People in my electorate do it tough. They are subject to significant natural disasters. In many ways, natural disasters, whether they be fires or floods, are a way of life for so many people in central and north-east Victoria, and something that we have learnt to live with. Where policymakers can come into play is when they can be proactive regarding policy frameworks that make it as easy as possible for people to respond to and prepare for natural disasters.

The main purpose of the bill is obviously to set a standard definition for flood. There is general agreement that it is high time that there was a nationally agreed definition for flood and that that is adopted. We all know that the insurance industry want to minimise risk and maximise return, and the ambiguity regarding a definition for flood has allowed them to pursue their commercial interests, as is to be expected. But this has left customers out in the cold, sometimes in the most atrocious of fashions. Unfortunately, we are yet to see the wording of this standard definition, so you can understand, Mr Deputy Speaker Leigh, why I am not wholeheartedly jumping for joy and embracing this legislation with great enthusiasm because it is crucial that the definition is right. It is one thing to support a well-meaning concept; it is another thing for that well-meaning concept can be incorporated in an accepted and well understood, simple definition.

The second component of the bill is the provision of a fact sheet for policyholders. Again, it is a noble concept and a sensible proposal. But the lack of detail about when the fact sheets will be made available, what they will contain, what they need to contain and whether the language is simple make it difficult to pass judgment until we actually see the regulations. The Natural Disaster Insurance Review put forward some very sensible suggestions—and it did raise the expectations of many people in the electorate. A key recommendation is the mandatory application of flood cover, but with a requirement to provide an opt-out clause. The importance of this recommendation was brought to light this year in my electorate when the RACV made the decision to apply flood cover to all insurance policies without giving customers the ability to opt out. The day the policy renewal invoices were sent out, my office was inundated and the phones ran hot. I am told that there was a 50-metre long queue outside the RACV offices in Wodonga. I spoke to countless customers whose insurance premiums skyrocketed overnight.

Just to appreciate the anxiety that this caused, I will list a couple of examples of the overnight increases in the insurance premiums. Joan from Park Lane in Wangaratta has lived in her house for 15 years. She has seen several floods in her time, none of which have impacted on her property. Yet her insurance premium rose from $540 a year to more than $3,000 a year. That is an increase of more than 550 per cent. Dianne from Martin Place in Wangaratta saw her premium go from $1,188 a year to $9,552 a year. That is an increase of more than 800 per cent. Chris Blake from Mansfield has never seen floods pass through her town before and her house has never been impacted, yet her insurance premium went from $470 to $2,400. That is an increase of 500 per cent. Chris has been looking elsewhere for a new policy, but is finding it increasingly difficult. AAMI quoted her $5,000. Most insurance companies in fact will not even give her a quote at all. This goes beyond just the RACV. I fear these problems will spread unless something is done soon. Giving consumers the choice of insurance by opting out is a very sensible suggestion, so they can decide the level of cover that they can afford and the risks with which they can live. I have had countless examples of consumers—just like the ones I have mentioned, constituents of mine—who have been left high and dry by their insurers. I think it is important to quote these examples, because I have heard some very questionable statistics floating around about how few customers will be impacted by the decisions of companies like the RACV. I would be more than happy to put forward these examples to the minister if they would assist him in progressing his deliberations on the very important issues and recommendations raised in this review.

This particular issue does go deeper. I have also spoken to local insurance brokers, and they have told me that some insurance companies have just left some parts of my electorate altogether. What happens when it comes time to sell a property that cannot be insured for under $10,000 a year or that cannot be insured at all? If this particular practice spreads, we will have a crisis in the housing industry in some parts of this country. Who on earth is going to buy a property that cannot be insured, or that costs more than $10,000 a year to insure?

So this does need urgent attention. I understand the minister is looking at the legal consequences of a proposal to introduce mandatory flood cover with a compulsory opt-out proposal. I look forward to advice on this matter in the near future. It is absolutely critical to many people across the country—in capital cities and in the regions—who are experiencing great anxiety and uncertainty, not only about their insurance cover but also about the value of their primary asset, which is their home. I hope the minister does move quickly, because many of my constituents are being left uninsured in the meantime.

On a final point, the NDIR proposed a national flood overlay map. This is a very important recommendation. One of the problems customers face when their insurance companies tell them they are in a flood zone is that it is very difficult to make a compelling argument in response. Local knowledge and experience does not really carry much weight. Insurance companies are not required to disclose their flood map data, which puts customers in a particularly disadvantageous position if they do not agree that they are in a flood zone. A national flood overlay map would empower customers to appeal, by providing them with nationally consistent, high-quality data. I hope the government gives this due consideration, because it is a sensible proposal.

In summary, I support the bill before the House, but it is only a very small step—and, in many ways, a motherhood step. The substance will be in the regulations and that is where we will assess the details to ensure that they are adequate and live up to their promises.

There is much to be done, and many Australians will be watching very closely to ensure that the minister's rhetoric during the floods of 2011 is backed up with substantial policy responses and real legislation that address the fundamental problems that are crippling many homeowners at the moment.

Bill Shorten (Maribyrnong, Australian Labor Party, Minister for Financial Services and Superannuation) Share this | Link to this | Hansard source

I thank honourable members for their contributions to the debate on the Insurance Contracts Amendment Bill 2011—including the member for Indi for her charming contribution. I note that she was attacking the government for making statements; it puzzles me somewhat why the coalition when they were in power failed to do any of what we are doing, because floods are not new. This government has acted. This bill will implement measures to assist consumers to make effective decisions in relation to their insurance needs through increased clarity and accessibility of information.

Schedule 1 of the bill will amend the Insurance Contracts Act 1984 to provide a standard definition of 'flood' across all home building and home contents insurance policies, and to extend this definition to cover small businesses and strata title bodies corporate. The definition provides a clear and easily understandable meaning for what is commonly known as riverine flooding—the covering of normally dry land with water that has escaped or been released from the normal confines of any lake, river, creek or any other natural water course or alternatively any reservoir, canal or dam. This measure will reduce consumer confusion regarding what is and what is not included in insurance contracts. It will avoid situations in which neighbouring properties affected by the same inundation event received different claims assessments because the flood policies covering them used different definitions of flood.

This measure will also improve the ability of consumers to evaluate potential insurance policies and compare like products with different insurer providers. I have moved amendments to the bill to ensure that the standard definition of 'flood' can operate as intended. The amendments respond to concerns raised by insurers in consultation with the House of Representatives Standing Committee on Economics as outlined by the committee's advisory report on the Insurance Contracts Amendment Bill released on 17 February 2012. I note that the House of Representatives Standing Committee on Economics recommended that the House of Representatives pass this bill. The details of the standard definition of 'flood' will be included in the regulations. Draft regulations were released for consultation late last year and Treasury will be undertaking further consultation in order to ensure that the wording and application of the standard definition is appropriate.

Schedule 2 of the bill will amend the Insurance Contracts Act 1984 to implement a requirement for insurers to provide consumers with a key facts sheet for home building and home contents insurance policies. This measure will make the purchase of home building and home contents policies simpler for consumers by assisting them compare policies with a consistent document and by facilitating more informed decision making.

On 29 February 2012 I released a discussion paper on the key facts sheet, which seeks stakeholder views on the format, content, structure and provision of the key facts sheet. Feedback on the discussion paper will allow the government to develop a prototype key facts sheet, which will be consumer tested. Once consumer testing is finalised, regulations will be made to give effect to the key facts sheet.

Some opposition members, as is their wont, have criticised the government for including elements of the standard definition, including the prescribed contracts to which it will apply and the wording of the definition in regulations. The prescribed contracts to which the standard definition of 'flood' will apply will be contained in regulations. This is consistent with the location of the standard cover regime for standardised contracts and reduces the potential for unintended consequences for both consumers and insurers. This is particularly important given that the standard definition will apply to small business and strata title policies. The wording of the standard definition of 'flood' will also be contained in the regulations. This will ensure that the policy intent of the new standard definition of 'flood' can be achieved in a simple and effective way and will safeguard against the potential for the standard definition of 'flood' to apply inappropriately.

The consultation process that the government has undertaken has been transparent and thorough. In April 2011 the government released a discussion paper that contained the proposed definition. The Natural Disaster Insurance Review considered this issue and in its final report recommended the adoption of the government's preferred definition. The government is now undertaking a final round of consultation on the wording. Both consumer groups and the insurance industry have publicly supported the government's preferred definition, in many cases expressing pleasure that at last a government has acted after 40 or 50 years—far too long.

The details of the key facts sheet for home building and home contents insurance policies will be contained in regulations, which is consistent with other similar one-page disclosure documents, such as the home loan key facts sheet.

In conclusion, this bill delivers on the government's commitment to provide consumers with a better understanding of what is included in insurance policies.

Question agreed to.

Bill read a second time.