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Floods tipping point galvanises government, industry 

Last week’s Insurance Council of Australia (ICA) Annual Conference was held a year after flood waters inundated towns in northern Victoria in a continuation of natural disasters triggered as torrential rainfall fell across eastern states during a third consecutive La Nina. 

Repercussions for the industry and government from the seemingly endless flooding, which came after bushfires and covid disruptions, were a focus for the conference, themed “insuring tomorrow together”. 

Assistant Treasurer Stephen Jones spoke on the importance of more resilient infrastructure, better planning and building codes and greater recognition in premiums of household mitigation measures. 

“We have to lean in because what is a significant problem today will be an even bigger problem next year, and an even bigger problem the year after,” Mr Jones said. 

“We want to see the important role that insurance plays as a societal benefit in managing risk continue well into the future. We want to ensure that it is both available and affordable to households across Australia and to businesses across Australia.” 

Mr Jones made clear that the Government is looking to solutions that deal with risks, rather than masking them, and reforms that just transfer risk to the Australian taxpayer are “not the sort of thing that we want to see”. 

The ICA is expected to release a Deloitte report it commissioned on the industry’s response later this month, while a House of Representatives committee is also inquiring into the floods and will release its report by the end of September next year. 

Ahead of the Deloitte report release, CEO Andrew Hall notes that the next review of the general insurance code of practice is also due to begin at the end of the year and responses will be additionally considered as part of that process. 

Considerations for extraordinary event responses include better workforce planning, improving communications and managing timelines and policyholder expectations. 

The conference heard flooding claims have added to the focus on wear and tear and maintenance exclusions, with concerns raised by the Code Governance Committee, the Australian Securities and Investments Commission and consumer groups. 

Australian Financial Complaints Authority (AFCA) Lead Ombudsman Insurance Emma Curtis says even lawyers can argue for a long time over maintenance clause interpretations, and wordings need to be written with retail consumers in mind. 

Mr Hall told a conference session that insurers are considering a possible standard clause, which would require Australian Competition and Consumer Commission authorisation, and the industry needs to do a better job of explaining maintenance and wear and tear issues. 

Mr Hall says home maintenance often isn’t front of mind, compared to regular car servicing, and there is often a lack of understanding around the way in which insurance applies. 

“That’s probably the other big concept that we are grappling with. A lot of people seem to think it’s a warranty. It’s not,” he told a conference session. 

The Australian Securities and Investments Commission (ASIC) says claims handling, design and distribution obligations and pricing promises are among its focus areas, as the industry deals with rising reinsurance costs while its consumers are experiencing tighter budgets. 

“Significant cost of living pressures persist for your customers, whilst accessibility and affordability issues seem at times more a catchcry than an action plan,” Deputy Chair Karen Chester said. 

Ms Chester noted insurers are looking to artificial intelligence to reduce costs, and product innovation can assist consumers, but she warned they have to “get the basics right”. 

In looking longer-term, the Australian Prudential Regulation Authority (APRA) has started a Climate Vulnerability Assessment, following a similar process for banks, looking at potential premium responses and affordability under different climate scenarios to 2050. 

The modelling will deliver insights on how the availability of insurance changes by regions, over time and under different climate scenarios, Executive Board Member Suzanne Smith told the conference. 

Ms Smith says APRA is “increasingly uncomfortable” with the widening insurance gap being created by declining availability and affordability, while it welcomes collaboration to tackle issues, including through the Hazards Insurance Partnership (HIP) between government and industry. 

Part of the HIP’s work includes creating a national insurance data asset, and ASIC and APRA are observers and are contributing to discussions, while a technical working group is exploring existing sources of industry data that can be leveraged to help better understand insurance and risk, Ms Smith said. 

This year’s ICA forum was also held soon after a trip to Europe involving the Assistant Treasurer and members of the ICA board, which includes executives from Australia’s largest insurers. Meetings were held with reinsurers in Munich and London and local problems were also put in a global context. 

Record Australian flooding and the rising cost of disasters has driven an increasing sense of urgency and greater government and industry cooperation in focusing on the issues. How that momentum carries forward will be apparent at next year’s conference.