General Information

Earlier this week we share a blog post titled “Video captures scene as vehicles are swept away by floods in Australia”

These floods will have a significant impact on the financial, and especially the insurance industry in Australia. Much has been written  – and will still be written-  about this topic. We would like to share some info provided by the Insurance Council of Australia on flood insurance:

The Insurance Council of Australia provides information about Flood Insurance

Flood Insurance in Australia – some useful information

Key Points

• The general insurance industry is working on developing greater access to flood insurance products for Australian communities., including a national flood information database (NFID) and a minimum standard definition for inland flood, to support better understanding of the risks to the community.
• Using NFID, where respective state governments have provided access to flood maps, flood cover will be able to be offered on terms relative to the known risks of the location.
• Ongoing co-operation and data sharing with government is essential to ensuring that the risks can be mapped and understood.

Background

• Flood is a persistent risk in the Australian community that traditionally accounts for one third of natural hazard damage.
• There are several inundation risks captured by the general term ‘flood’. Community interest and focus on flooding has traditionally been restricted to rivers and creeks overflowing their banks due to long duration rainfall over large catchment areas.
• Flash Flooding, a significant part of the flood risk, is produced by high intensity but short duration storms producing localised flooding conditions. Inundation risks related to stormsurge and tsunamis are also risks faced, albeit to a lesser extent by the Australian community.
• Many legacy land-use decisions and a general lack of availability of accurate flood mapping, have contributed to a situation where flood cover is not widely available to consumers.
• The 1974 Brisbane City flood provides a graphic example of the underinsured or noninsured economic impacts that were borne by the community and the government, where a total economic impact of $980M was experienced with insureds having cover to $68M.

In 2007 dollar terms, should such a flood ever be repeated, this represents a potential insurance loss of $1.8Bn and a simply staggering uninsured loss for both government and the affected community. An increase in the availability of affordable flood insurance for the community is imperative, a project that the Insurance Council of Australia is
currently engaged in.
• Notwithstanding the prospect that flood insurance may become more widely available in the future for certain types of inundation, the Insurance Council estimates that there are approximately 170,000 homes in the community where a high flooding risk may lead to high localised premiums or a simple lack of availability where insurers cannot accept the risk level.
• The key for consumers today, is to ensure that they are informed of the current flood risks to their home and to take feasible and available mitigation steps.

Determining the risk to your home

• Flood maps are available for some Australian communities that primarily focus on rivers and creeks. In some cases these maps also cover historical localised flooding due to overtaxed drains, etc (flash flooding).
• In many regional areas, Australian governments and other agencies have studied, analysed and modelled the risks by producing flood maps showing areas of inundation for 1:100 year flood events. While the style and content of these maps may differ they will all classically focus on highlighting geographic areas generally referred to as “flood
zones” or flood “overlays”, simply meaning those places at greatest risk of flood. The zones and overlays identify areas that have been flooded in the past, or are predicted to flood in the future. History shows approximately 80 percent of all flood loss occurs within these areas.
• In Australia flood mapping is typically the remit of your Local Council or a floodplain management authority. In determining if there is a flood risk to your property consumers should approach the Local Council or floodplain management authority and ask if your property is known to be affected by flooding. Many States require Local Councils to develop and implement natural hazard and environmental information as part of development controls.

Some States also require this information to be provided as part of various property purchasing processes in an effort to ensure that consumers are made aware of any latent risks with the property in question.
• If, as a consumer, you have not been given flood risk information as part of your State’s property purchasing process you should seek out the Local Council and/or floodplain management authority and request whatever information is available.
• Consumers should be aware that many factors can influence the accuracy of flood mapping including building development, road works, new agricultural growth, changes to river & creek catchments as well as changes to drainage and sewer arrangements for your area. Frequent re-familiarisation of the risks through engagement with your local
council and/or floodplain management authority is essential.

Protecting your home if subject to flood risk

• Apart from choosing to not establish a home in an area of known flood risk – the most prudent prevention method – there are personal flood mitigation actions that can be taken that may reduce the level of impact experienced during a flood. As part of its climate change adaptation program, the Insurance Council of Australia is developing property protection guidelines which provide high level guidance on risk mitigation for flood events.
• Consumers in a known flood zone or overlay should familiarise themselves with their Local Council’s emergency management plan or any flood awareness material provided by your local council, floodplain management authority or state emergency service agency for information that will help protect both yourself and to some extent your
property.
• Consumers can also familiarise themselves with flood preparation guidance offered by Emergency Management Australia.

Determining if you are covered for flood

• Consumers with property and contents insurance, who may be at risk of flood damage, should review the terms and conditions of their cover by reading their Policy Disclosure Statement (PDS). Characteristically, restrictions on policy cover are listed as exclusions which detail the circumstances under which cover is not applicable. If in doubt make
contact with your insurer to clarify the extent of cover currently held and your insurance
needs.

The Insurance Council’s flood insurance project

• Following on from the considerable research and work undertaken by the general insurance industry on the issue of flood mitigation and management, the Insurance Council Board endorsed an approach for the industry to pursue a framework which will lead to flood coverage becoming available for nearly all households in Australia.
• The industry has also reaffirmed its commitment to working in partnership with Governments to address the issues of flood mitigation and management, noting that flood remains a significant community issue that stands to worsen with the various inundation predictions arising from current climate change models.
• The Insurance Council believes a partnership approach with Government and the general insurance industry is needed to find ways in which community understanding of flood risk and its management can be increased. This includes flood insurance being made more widely available when the risk of flooding is reduced to an acceptable level
through mitigation measures.
• To reduce consumer confusion, the general insurance industry worked to develop a voluntary common definition for inland flood. It is envisaged that this definition of flood would be adopted on a voluntary basis by individual insurers; i.e. – insurers would remain free to offer coverage to alternative definitions for flood, with consumers able to use the
voluntary common definition as a reference point for comparison of the product actually being offered.
• The primary obstacle to achieving greater market availability of flood cover for the majority of households, is the ability for insurers to understand and price the risk.

NFID – National Flood Information Database

• Development and maintenance of flood maps and how they impact upon the built environment is a role typically left to local government authorities and/or floodplain management authorities in each of the states.
• In some instances there are highly accurate flood maps made available to the community and industry, upon which reasonable risk decisions can be made. In other instances no flood mapping is or can be made available, leaving a situation where local communities and insurers are unsure of the extent of the risk.
• The general insurance industry is preparing a national property database using available government flood studies, provided by each respective State.
• This database will be employed by Insurance Council members to test the risk applicable to an insured’s property and then to offer flood cover if the risk is within the insurers own calibrated limits.
• Apart from engendering a knowledge environment where the predicted risk to all flood prone homes will be able to be understood, quantified and priced according to individual underwriting tastes, the industry will also be in a position to work closely with government on those areas collectively identified as being at extreme peril and beyond the risk
appetite of the market.
• A key ingredient for the success of this project is the availability of and access to all current flood mapping, in all its diverse forms presently held by government agencies.

Working with Government(s)

• Insurance Council of Australia research indicates that a joint industry-government approach for flood insurance has been successfully undertaken by several OECD countries and it is our hope that this success can be replicated in Australia.
• The Insurance Council and Government have engaged on the flood issue through the newly formed National Flood Risk Advisory Group (NFRAG) operating under COAG.
• The key ‘ask’ from industry to government(s) on this issue is the provision of all available flood mapping data currently held at local, state and federal agencies, for incorporation in the national flood map.
• Consumers may not be able to access flood cover in areas where local or state government have not provided access to flood studies and maps.

Contact
Karl Sullivan
General Manager
Policy Risk & Disaster Planning