Major insurers 'not walking away' from flood risk communities

Australia’s biggest home and contents insurers are not abandoning communities with high flood risk, despite suggestions made by critical mainstream media headlines.

“Insurance Council lie EXPOSED as flood victims abandoned,” read a Daily Telegraph headline today, after the story of a Forbes, NSW, resident was recounted by the newspaper and the ABC. (The headline was later altered.)

The resident’s insurer, Budget Direct, declined to renew cover on her home in May, and the homeowner says she was unable to source new flood cover before Forbes was inundated and her property damaged.

But while the parent company of Budget Direct, Auto & General, has confirmed it sometimes declines to renew based on updated flood mapping, it says this is done at individual property level and not by town or region, and industry sources say none of the major underwriters ‘red-line’ at risk areas.

Temporary embargoes on new cover in areas where a flood event is imminent are common and, due to persistent La Nina conditions, many postcodes have been subject to prolonged embargoes this year.

However, even when an embargo is in place an insurer would not ordinarily decline to renew, if there were no changes to the cover.

“None of the majors have stopped offering cover,” one source said. “We haven’t stopped offering cover in Lismore, so why would we stop in Forbes? Flood cover may be expensive, but it is available.”

The alleged “lie” referred to by the Daily Telegraph is based on a previous Insurance Council of Australia (ICA) assertion that “no-one is currently issuing these notices of decline to renew”, which the newspaper says is contradicted by the Budget Direct customer’s experience.

The ICA says Forbes is a high risk area for flood, and stresses the importance of mitigation measures such as levees and floodways, or grants to retrofit homes or even buy backs.

“Claims that insurers are putting profits before people are not true, and insurers continue to support customers above and beyond the terms of their policy,” an ICA spokesperson told insuranceNEWS.com.au today.

“For example, one insurer has increased its temporary accommodation allowance for Eugowra customers and reset the start date for this allowance.

“Other insurers are also providing a range of ex gratia payments to customers, including those without flood cover who are not strictly eligible for these payments under the terms of their policy, and/or extending temporary accommodation arrangements.”

The spokesperson also highlighted claims costs in relation to home insurance.

“In the 12 months to September 2022 home policies returned a gross loss ratio of 111% in NSW. That is, for every $1 collected in premiums $1.11 was paid out in claims. These figures do not take into account insurers’ costs and overheads.

“According to APRA data, across Australia in the 12 months to September 2022 insurers made an underwriting loss of $250 million on home policies. This mirrored the previous 12 months, which showed an underwriting loss across the same category of $315 million.”

A spokesperson for Budget Direct told insuranceNEWS.com.au that updated flood mapping is received “as part of our normal underwriting processes”.

“These updates can lead to a small percentage of addresses changing from acceptable to no longer being acceptable.

“The application of these changes is specific to individual addresses, not to a town or region.

“We would request that it is also noted that as part of our response to the recent floods in the Forbes area, we proactively contacted all of our insured customers to check they were ok.

“We are in the process of managing many claims in the area and continue to have representatives on the ground in the area.”