Floods provide a valuable lesson regarding insurance

In recent times, many Australians have learnt the hard way regarding the dangers of complacency when it comes to insuring their homes, investment properties and businesses.

Tragically, in Queensland and parts of northern Victoria where residents were hit with some of the most turbulent and unpredictable weather we’ve seen, a large percentage of home owners were not covered for damage or destruction of their properties as a result of floods.

In fact according to the Insurance Council of Australia (ICA), only 50% of us currently have flood coverage in our policy.

The misfortunes of these flood victims should act as a lesson to all Australian property owners. While it’s understandable to feel incredulous at the apparent lack of compassion displayed by insurers at this time, the harsh reality is that the responsibility falls back on the home owner to know what they are and are not covered for in their policy.

In a recent report published on news.com.au, the insurance industry conceded that their product disclosure statements, which outline the extent of the policy’s coverage, can be difficult to interpret.

However, general manager with the Insurance Council of Australia Karl Sullivan places the onus squarely on the consumer, claiming customers are too complacent when it comes to understanding their insurance policies and in particular, the extent of flood coverage.

Speaking to the ABC recently, Sullivan said, “Most of the definitions are written in very plain English and are very simple for a layman to understand.”

“Unfortunately a lot of people maybe don’t make the effort to understand what the risks are that they’re facing.

“Complacency is one reason. Before I joined the industry I think I was probably one of those people who didn’t pay a lot of attention to reading policy documents. I certainly do nowadays.”

However the ICA’s communication’s manager Paul Giles, says that while product disclosure statements are intended to protect the consumer by providing regulatory guidelines for insurance companies to work within, they can be hard to follow.

He says while these legal documents are intended to provide customers with the security of knowing their insurer is required to work within regulatory guidelines, they are “quite long”. In other words, they are not necessarily as consumer friendly as insurers would like to believe.

Giles says if customers felt they were being charged too much for flood cover by their existing insurer, they should shop around for a better deal. But he warns that cheaper is not always better.

“I think customers need to understand that one size doesn’t fit all, so perhaps purchasing on price alone if you live in a high-risk area isn’t the best way to go.”

Giles says that in the past, insurance companies have been reluctant to provide flood cover in their policies as the lack of flood-mapping data in Australia made it difficult to assess the risk of floods in different areas and the potential cost of flood damage.

However he says this has changed in the last few years and it’s now becoming easier for insurers to measure the risk of such events.

While many are concerned that the recent floods will see insurance premiums increase significantly in the near future, Giles says this won’t necessarily be the case.

“At the end of the day it’s a commercial decision, but you can’t say that one event will affect premium prices.”

The best advice is that if you read the product disclosure statement provided by your insurance company and still don’t know what exactly you are covered for…ask! Do not assume anything when it comes to insurance, call their customer help line and get some peace of mind from a person rather than a piece of paper.


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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au

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