Flood Insurance Inquiry: lessons for the coast?
On 18th October, the House of Representatives Standing Committee on Economics released its report following an “Inquiry into Insurers’ Response to the 2022 Major Floods”. The Inquiry was chaired by Daniel Mulino MP. The report was referred to this Committee of the Australian Parliament with the support of the Assistant Treasurer, Hon Stephen Jones MP. He expressed concerns over how many householders were adversely impacted by the flood events of 2022. As a Standing Committee it is in a position to make recommendations to the Executive Government. In this case 86 recommendations were made. Of course the Government is under no obligation to act on the recommendations.
I have had a long-standing interest in ways the financial industry, insurers in particular, may influence behaviour in hazardous areas. Some of my thoughts have already been expressed: see Blog 252, December 2023, on “Coastal hazards, insurance and federal powers”. Here I will pick up some of the key findings from this latest Parliamentary Inquiry on floods given their potential relevance to coastal situations.
The Inquiry received many submissions recounting harrowing experiences from flood victims in dealing with insurance companies. The effect on members of this Economics Committee was apparent as seen in the thrust of their recommendations for actions not just by the federal government but also by state, territory and local governments. A separate so-called dissenting report by Andrew Gee MP portrayed with considerable emotion the feelings of despair of many householders he encountered. It is clear all this angst about the behaviour and processes of some insurance companies applies to other disasters and provides a stark warning to governments and industry of what lies ahead unless certain actions are taken. This Parliamentary report makes for salutary reading.
The following offers a brief summary of those recommendations which I have selected as relevant to both open coast and estuarine areas (recommendations are numbered as they appear in the Committee’s report). All request action by the Australian Government, or other responsible governments, and/or the insurers.
In Chapter 4 there are two recommendations of interest: R1 seeks greater clarification of terms in the Insurance Contracts Act 1984 on forms of water damage (e.g. storm surge, tidal surge, rainfall runoff, riverine flood). This is a messy area. R7 requests the establishment of an independent expert panel of hydrologists to assess reports where policy holders dispute initial reports. This mechanism is deemed necessary given evidence presented to the Inquiry of difficulties with hydrology reports.
Chapter 5 has two recommendations (R38 and R40) related to the need for insurers to be adequately resourced with staff who are best equipped to assist vulnerable customers. There is a need to improve staff training who can “adopt a trauma-informed approach” when communicating with policy holders. All this points to evidence before the committee of deficiencies in communication and education of those involved at the household level.
Chapter 8 is where the Committee looked into ways that could strengthen the Government’s response to floods. In a few places it touched on where flooding entered tidal waters with consequential effects. Consideration was given in some detail as to the availability and quality of data held by multiple parties noting how difficult it is to get public access due to licensing arrangements. R62 asks the Australian Government to work with states and territories to ensure flood maps are produced to a high standard across the nation. Here they identify the need to increase funding to local government and that over time this “high quality flood modelling be made freely accessible” (see also R65 on data in the National Flood Insurance database). R63 builds on this by supporting a “national, centralised public-facing portal containing flood risk data at the household level”. And even further in R64 better ways must be found to communicate concepts such as ARI, AEP etc. which are so often misunderstood. R66 is quite pointed on a role for the National Cabinet to ensure funding and other support is accessible and adequate for local councils, especially small councils.
Issues of affordability of insurance and the appropriateness of development in high flood-risk areas are covered in Chapter 9. R70 considers such issues and sets out some principles for governments to consider. They include the principle that all three levels of governments should comment on arrangements (including more public disclosure) to ensure no new developments occur in high flood-risk areas. But another principle is that premiums to be “immediately” reduced when householders undertake risk mitigation. Note: this would potentially be a big problem in coastal areas subject to erosion if mitigation in the form of protection works was undertaken on an individual household basis. In R71 again National Cabinet is invoked to ensure further development does not occur in areas of I in100 flood risk or greater. Critical point is made here: “The boundary for no further development should take account of climate modelling of future increases in risk, in addition to current estimates of risk”. This view can be seen as reflecting provisions in the NSW Coastal Management Act 2016. R72 and R73 refer to conveyancing practices and building codes, respectively, on the importance of strengthening processes and codes. Finally, R81 suggests co-funding models should be developed by the Australian Government with states and territories to buy-back properties from households in “very high flood-risk” locations. Could this also occur in coastal areas?
I have no idea how acceptable these recommendations will be to governments and the insurance/financial industry. There is a call for planning laws to be improved in the light of the Committee’s findings. Here is where state governments have powers that they may or may not wish to use. Recent release of the State of the Climate Report 2024 highlights how changing climatic conditions are increasing threats of flooding and coastal inundation so that there is a sense of urgency to act. Compounding of hazards (floods, surges, extreme high tides, entrance erosion) in coastal lakes and tidal stretches of rivers are where many of these threats will occur and along with sea level rise as noted by the Committee. All this should be seen from a national perspective and I congratulate the Committee for their efforts in addressing the issues. What will happen next?
Bruce Thom
Words by Prof Bruce Thom. Please respect the author’s thoughts and reference appropriately: (c) ACS, 2024. For correspondence about this blog post please email admin@australiancoastalsociety.org.au
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