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Standardised definitions ‘won’t solve everything’

Standardised definitions of natural hazard terms could reduce confusion, but won’t solve all coverage and claims issues, Treasury has warned a Federal Government Inquiry into insurers’ responses to the 2022 floods.

Currently flood is the only hazard to have an agreed definition. As has reported, Treasury has released a discussion document on also defining fire, storm, and stormwater and rainwater run-off, as well as considering reform options for the standard cover regime.

On Friday, Treasury Assistant Secretary, Banking, Insurance and Credit Robb Preston told the inquiry that clear definitions for the three additional hazards would help consumers understand coverage.

But he said that even with that clarity, insurers would still have to wrestle with “a difficult choice” of what to cover people for, with some insurers allowing customers to opt out of flood, and others not. One insurer bundles rainwater runoff in with flood, so if you opt out of one, you opt out of both.

“Even if you have clearly defined distinctions between what a flood and a flash flood might be, you then need at claims time to distinguish between those, and that can bring cost, delay and so forth,” he said.

“There is merit in looking at standardising the definitions of the three perils that we pointed to, but note that I think that there will nevertheless be complexities that exist even if we go down that path.”

Mr Preston added that Insurance Council of Australia (ICA) discussions around standardised definitions for maintenance and wear and tear exclusions – which are not part of the Treasury consultation – are useful, but that such a definition would have “limits”.

“I do think there are limits to how far a definition can take you in that space. It can relate more to application.

“The value of the process that the ICA is running is industry can come together and get clarity around what expectations are for fair wear and tear in a range of different circumstances. That would be quite important for customers.”

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