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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Garth Hamilton (Groom, Liberal National Party) Share this | Link to this | Hansard source

by leave—I'd like to start by thanking the chair for his stewardship of this very difficult report. This was a Standing Committee on Economics inquiry that went right into emotional statements from people, something we don't often do, and I think the way that you handled that was absolutely excellent. The truth of the matter is the secretariat did an outstanding job. This inquiry spanned a broad area of Australia, so I thank them for their hard work. I join with the chair in thanking everyone who gave evidence or spoke before the committee. I do want to thank the engagement of the ICA and the insurers, who were very aware of how important this inquiry was, particularly to those affected. I would note that in some cases there are actions they have already taken towards the recommendations because they engaged so fully. I think that speaks volumes, Chair, to your leadership throughout the management of that process. It is important also to echo the chair's comments. We have to talk in statistics when we are talking about an event as big as this but it was so crucial that we did hear the voices of those impacted directly. The work that was done was excellent.

The most important issue that I came across and wanted to prosecute throughout this inquiry was planning and the role it played in putting at times very vulnerable people into housing that was completely unacceptable. I remember very clearly the testimony of the CEO of the Moreton Bay Shire Council, who told us that he had to increase the area's population by 12,000 people per year. When we asked: how many of the houses that you are building are on floodplains? He said 'quite a lot'. It was this devastating thought—that the problem we are talking about is only going to get worse, and he very well knew it. I commend him for his honesty. The reality is this will probably get worse in these areas, so particularly recommendations 71 and 72 on planning speak to the heart of the issue. If we want to resolve the responses of the insurers, one of the best things we could do is reduce the number of people being impacted right at the start.

There are two recommendations that I flagged, which speaks to the report. In the whole of the 86 recommendations, there are only two that I have strong concerns about. One was recommendation No. 3. While we're looking at the response of the insurers, it's also important to take a look at the broader context of insurance. We have seen increases in insurance costs that have gone through the roof. I have genuine concerns about any actions a government may take that would good push that affordability higher, because the last thing I would want is vulnerable people to be unable to afford insurance, and this could make the problem was. I think that is a step where we have to be very careful about how we manage that process so that any changes don't result in people choosing to self-insure and drop out of that cycle. That would be the worst possible outcome.

Recommendation 70 speaks to government intervention. I have spoken briefly on the issues around affordability and how they can make things worse. I would hate to see a situation where we have an issue around the availability of insurance in Australia similar to what we saw in California. I refer to the study tour that was undertaken. I thank American chamber and ICA for putting that together. It was insightful to see a region that is often described as being similar to ours in terms of the events, the climate, the spacial distribution of houses. The private insurers have walked out of California. We heard the National Flood Insurance Plan provides only four per cent of Americans with insurance up to a maximum of $350,000. That includes the $100,000 top up from FEMA and it is just a cheque that is given to people. There is no management or mitigation, no improvement of the situation. I would hate for us to be in that situation, I really would. That was one thing that really terrified me—the thought that, while that is an extreme outcome, it is within the realms of possibility—and is one that we must avoid at all costs. I raised that concern.

I note that the insurance industry has already come together to put together responses to all of these recommendations. I commend them for that. I think they need to do that for the sake of everyone who gave their testimony. They need to see the insurers responding fully themselves. But I think it would be important for any government, before they took any steps to proceed with any policy, to get those responses from industry.

Again I thank the chair and all the committee members, particularly those who joined the committee, for their inclusion.

Andrew Gee (Calare, Independent) Share this | Link to this | Hansard source

by leave—I rise to make remarks in relation to this issue and this report on behalf of constituents in the electorate of Calare in central western New South Wales.

The storms and floods that hit central western New South Wales in November 2022 were catastrophic and devastating for our region and its residents. Two lives were tragically lost in Eugowra, which was the scene of the largest helicopter rescue in Australia's history. Across the communities of our region, including Eugowra, Molong, Cudal, Canowindra, Manildra and Wellington, infrastructure, homes and businesses were destroyed. The stress, fear and anxiety amongst our local residents from not only having survived the ordeal of their lives but also facing an uncertain future were palpable.

When disaster struck, our residents naturally turned to their insurers for help, and issues arose almost immediately. For example, NRMA had been the insurer of choice for many local residents in Eugowra, yet in the immediate aftermath of the disaster, many residents reported problems in being able to talk to claims personnel. It took the company 10 long days after the disaster to arrive at the Eugowra showground with their mobile claims unit to assist homeless residents. This was a source of anger amongst residents, which grew stronger as the response to the disaster unfolded. As the exhausting days of recovery wore on, problems with insurers just grew and grew.

I held public meetings in our electorate of Calare where residents were able to tell and share their stories. It was empowering. Residents noted striking similarities in the way in which insurers were treating their policyholders. These included policyholders not having key provisions in their insurance contracts explained to them, claims processing being unnecessarily dragged out, substandard and inconsistent expert reports, shoddy treatment by contractors and insurance company representatives, claims being unnecessarily knocked back, and policyholders being offered, and accepting, lowball cash settlements because they were too exhausted to fight anymore.

It was clear that the rebuilding and recovery process was being made much harder and the tragedy much worse by the cold-hearted and shocking response of insurers to policyholders. There were so many issues being raised about insurers that local residents and I began calling for a parliamentary inquiry. To its credit, the government called for an inquiry. The Assistant Treasurer and I announced the inquiry in Eugowra in July 2023. This committee then took evidence in Eugowra, Molong and all over eastern Australia and, for the first time, a real spotlight has been put on the industry. What it has revealed is unconscionable and systemic industry failures that exist at every step of the insurance process.

The evidence taken by this inquiry amounts to a damning indictment of the insurance industry. While some in the industry may be ashamed of it, I suspect many are not. Eugowra is a long way from the boardrooms of capital cities. While not every insurance company did the wrong thing, the living hell that a number of these large insurers have put policyholders through should not be sugar-coated. Words should not be varnished when describing it. The narrative put forward to this inquiry by the Insurance Council of Australia and a number of insurers was, in effect, that the floods of 2022 were unprecedented. This and other excuses, such as poor planning decisions since the time of Governor Macquarie and European settlement, COVID, labour shortages and the war in Ukraine, all resulted in some customers having poor experiences. Examples of this attitude and these excuses are littered throughout the written submissions and oral testimonies of insurance industry and company representatives.

But, as we know, major natural disasters are not new to Australia or insurance companies. There is simply no excuse for what a number of these corporations did to their policyholders, and the Australian public should not let these insurers get away with this arrogant spin. When insurance company representatives came to give evidence before this inquiry, there appeared to be a complete lack of insight on the part of some of them as to the pain and suffering they had inflicted upon their own customers, notwithstanding that an army of public relations consultants had no doubt prepared many insurance company representatives for their appearances before our inquiry. In some cases, getting apologies and acknowledgements for the hell they had put their customers through was like pulling teeth.

As I've said, some insurers did do the right thing. Some did genuinely try and assist residents in our area, but the fact remains that the industry giants clearly don't like the spotlight being put on industry practices or the healthy profits that they continue to enjoy. This profitability has come at a high cost to many of their fellow Australians. The reality is that the Australian insurance industry has had a good thing going for a very long time. It has donated to both sides of politics. It's a strategy that has served it well. In the midst of healthy profits, it's been left to largely self-regulate.

Insurance companies don't just answer to shareholders; they also answer to the nation. They don't just have insurance contracts with our residents and businesses; they also operate with a social licence. The Australian public needs to be vigilant and not be afraid to revoke these licences to operate when egregious behaviour comes to light. This inquiry has exposed plenty of that.

As I've said, profits have been made by these corporations at the expense of customers all around our country. The committee heard evidence from policyholders about their treatment by insurers that was deeply disturbing and disgusting. This callous treatment was truly shocking. The debilitating effects this has had on traumatised policyholders is tragic, and it must be stopped.

The report makes recommendations across a range of issues plaguing the industry. I believe that they can make an important contribution towards fixing the massive power imbalance that currently exists between insurance companies and their customers. I just don't think they go far enough. These insurers need to be held to account. More recommendations are needed, and I was disappointed that more weren't included in the main report and given the consideration I believe they were due. That's why I filed additional comments and a dissenting report to supplement the main report. It contains a further 38 recommendations that can make a real difference to insurance policyholders such as forcing experts and claim assessors to sign up to a code of conduct; funding building expert reports for policyholders when complaints reach the Australian Financial Complaints Authority; forcing all insurers to sign up to the General Insurance Code of Practice; properly funding community legal organisations to help disaster-hit residents; and stopping the uncontrolled strip-outs of policyholders' homes after natural disasters, which has been described as legalised looting.

All of these recommendations are the first steps to fixing a broken industry. The government and insurers now need to step up and implement the recommendations. Policyholders shouldn't be made to wait for long-overdue reforms. The government now needs to act on the recommendations and ensure that any necessary legislation can be passed during this term of government. The insurance industry also needs to get cracking because the eyes of the nation are upon it.

I wish to thank the very hardworking chair and the secretariat staff for their hard work and diligence throughout the course of this inquiry. The committee has worked in a productive and collegiate way. I wish to also thank all who gave evidence to this inquiry. For many, having to relive the trauma they suffered has been very difficult. It is my hope that by telling their stories, collectively, they can be a catalyst for long-overdue change and reform to this industry.

I extend a heartfelt thank you to the countless unsung heroes around our nation who risked their own lives to save others during these devastating disasters. I also thank those who've worked with such care and compassion to help so many to rebuild their lives and recover from such tragic loss, including those who've attempted to help policyholders get through the deeply traumatic process of dealing with insurers.

In that respect, in our area, I make mention of the team from Legal Aid who were there from the first hours of this disaster. There were also many others including lawyers like Kirsty Evans from Cheney Suthers lawyers in Orange who gave up so much time to make submissions to this committee and help our devastated residents right throughout our region. Their work continues to this day.

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

I move:

That the House take note of the report.

Lisa Chesters (Bendigo, Australian Labor Party) Share this | Link to this | Hansard source

The debate is adjourned and the resumption of the debate will be made an order of the next sitting day.