'Big hole in the market': farm properties and flood

We’re very used to flooded homeowners complaining to the mainstream media after discovering their insurance doesn’t respond to an event.

And while the industry is always sympathetic, the response is usually based around the fact that flood cover is available – for a price that reflects the risk – and that the affected insureds unfortunately chose not to take it.

A report on Channel 9 last week had the usual footage of sewerage swilling through the property, along with the usual outrage about useless insurance policies that the residents “might as well burn”.

https://9now.nine.com.au/today/victoria-floods-farm-family-insurance-rejected-after-property-inundated/e56662f5-54ac-4173-a94d-cb938740d23b

But it also had an important distinction. The devastated couple, from near Shepparton, Victoria, told the presenters that because they live on a rural property, they couldn’t have bought flood cover even if they had wanted to.

“Because we are a rural property we have to have rural insurance, and they don’t cover flood,” Cal King told Channel 9.

“The insurance companies say that anything to do with rural, they won’t cover flood, because they don’t have a mapping for flood areas so they just won’t take the risk with it.”

His wife Shelly King says they only realised after the event that “there’s a big hole in the market”.

“Our broker said to us he deals with six insurance companies and he said all of them, with farm policies, do not cover flood.

“Now we know we are not covered, whereas if we were in town, potentially, depending on who we were with, the house would have been covered.”

The Insurance Council of Australia (ICA) disagrees.

“Flood cover is available for all properties, often as an extension to farm business products, and as a common inclusion in home and contents policies,” a spokesperson told insuranceNEWS.com.au.

“Local insurance brokers are often well placed to identify a property owner’s risks and find appropriate products that help cover financial losses in the event of an extreme weather event.”

But brokers on the ground say the cover, in practice, is not available – at any price.

Most insurers insist that if a plot is over a certain size, then the consumer cannot purchase a standard home and contents policy.

The problem is that farmpack policies don’t include flood and, unlike with bizpack, you can’t add it on either.

Most brokers were reluctant to say categorically that there isn’t an underwriter somewhere that would do it – but in practical terms every broker we spoke to agreed that what the Kings are saying is accurate. The cover is simply not available.

Rural and Distribution Manager at brokerage Ausure Grant Brokenshire says when it comes to flood cover for farms the mainstream underwriters “generally just avoid it altogether”.

“It’s just unavailable as far as we know, apart from a few bits and pieces. Some policies have additional benefits which may be payable. It’s possible that dairy farmers for instance may be compensated where access to their farm is prevented. The sub limits for these benefits are generally modest.”

The reason insurers won’t consider flood cover for a home on a plot above a certain size relates to their inability to accurately assess the risk.

On a 100 acre plot, they don’t know precisely where the home asset is located so they cannot price the flood risk.

But for a neighbour on one acre, they can, and so they could be offered flood coverage.

Whether they could afford it, or would take it, is another matter, but the discrepancy the Kings highlight appears to be real.

With technology and big data now major part of insurers’ processes (not to mention Google Earth), does the “we don’t know exactly where your house is” argument hold water?

Insurers accept that technology might be able to assist in future, and brokers would like to see cover come into the market – but the solution has not yet been found.

Mr Brokenshire warns that while tech could well provide potential for more accurate flood rating of rural properties in future, for the time being farmers and hobby farmers should be aware that they are very unlikely to be able to source cover for the risk.