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flood insurance « Previous | |Next »
January 20, 2011

I think that it a national disgrace that the inadequacy of insurance for floods means that many people are ruined, either because flood insurance is to expensive, the insurance companies avoid flood insurance; or they limit the coverage. It's a classic example of market failure. Many Queenslanders----40- 60 per cent-- for instance, were uninsured because they could not get the coverage where they lived.


It is an issue that needs to be addressed because people return to rebuild their homes on the flood plain that has inadequate protection from future floods. Given that the one in a hundred years flood no longer makes much sense, there is a need for some form of affordable national insurance for natural disasters (water damage, bush fires and earthquakes etc).

Such a low cost coverage scheme is what the Insurance Council opposes--in spite of the obvious market failure. What local insurers will more than likely do is use the floods to pass on double digit rises in premiums to consumers. The market will not address this issue nor will they do the necessary flood mapping (public information) or mitigation works.

This is an obvious example for government intervention into the market. Will the Gillard Labor Government have the courage to intervene?

| Posted by Gary Sauer-Thompson at 10:36 AM | | Comments (12)


Andrew Fraser, the Treasurer of Queensland, says in The Australian that many insurance policies make a distinction between the effects of inundation caused by a storm, flash flood or riverine flooding. He adds:

Concerns from competition regulators and consumer groups saw the quest for standardised flood cover abandoned in the face of an industry stalemate. The risk for the insurance industry here is that old arguments - that the flood risk can't be priced, or priced economically - could lead to calls for different reforms.

He adds that if reform cannot be achieved by the insurance companies, support will build for a government-backed scheme, similar to the one in New Zealand that provides insurance against earthquake damage.

The New Zealand Earthquake Commission is funded a surcharge on home fire insurance policies. It's far from perfect, but it does provide a level of cover to residential property owners.

A planning model which plans for a one in 100 year flood should be abandoned. It makes no sense these days with more turbulent weather.

Has any one noticed this odd phenomena emanating down from Queensland, against an inquiry into what happened?
Can any one explain this curious response?
Is it due to trauma caused by the floods?
Was the result of the floods a good result?
If this were the case, still, nothing is so perfect that it can't be improved on, with a little further consideration?
'Scuse me!

In our current (entirely corrupt) political process, there is no point in even talking about any Govt. intervention unless it works to channel public money into the pockets of the Right People.

The Australian's proposal ("Brisbane's Chance For Vital Urban Renewal" - linked in the post) works this way. It proposes lots of trendy riverfront development/ redevelopment projects, combined with lots of expensive engineering. The developers get their cut, and so do the civil engineers. The people who have lost their homes get nothing, and households of the future will have to pay a lot more for river views.

Just to be clear, I am entirely on side in principle with Gary Sauer-Thompson's proposal for Govt. intervention. I just don't think it's going to happen. There will be no Govt. interference in the insurance industry, and there will be no rezoning.

re your comment: "There will be no Govt. interference in the insurance industry, and there will be no rezoning."

Sadly, I think that you will be proved right. The Bligh Government is unlikely to push this as is the Gillard Government. We must await the findings of the Royal Commission to see what they propose. They will be obliged to raise it and address it, given that so many Queenslanders are financially ruined because they did not have flood insurance.

That was a telling post, Gordon.
A sad one also, for what it says about our hollowed out system, a dead rabbit colonised by larvaea.

It's depressing, but Gordon's right. We vote for the two major parties, The Corporate Insterests Party or the Party For Corporate Interests.

The terms of reference for the Royal Commission.

These include the performance of private insurers in meeting their claims responsibilities; and all aspects of land use planning through local and regional planning systems to minimise infrastructure and property impacts from floods.

There will need to be special conditions placed on the future sale of these properties and perhaps even the rental of them. Ironic that the coucil will be the ones to enforce these conditions.

My question is simple. Why should insurers be forced to offer flood cover for people who chose poor locations for their property? If they priced this risk correctly, the property owner would not be able to afford the cover. If the insurer shared the cost over the portfolio - why should other policy holders pay through increased premiums to their non-flood risk properties?

that is why the government needs to step in and provide some sort of basic disaster insurance.

By the way it is not just people choosing poor locations for their property. Both governments and councils have allowed these developments and the developers have assured people investing in luxury apartments that they were not at risk.

The Insurance Council of Australia says Forget about a flood levy. Rob Whelan, their chief executive, says in The Australia that:

There has also been a growing chorus from a small but vocal group of politicians eager to introduce a flood levy across Australia. This is essentially a new tax. If the proposed levy were to be applied to insurance policies, it would not only add to the cost of premiums but unfairly punish existing policyholders.
Imposing additional taxes in the form of levies on policyholders is not the way to encourage consumers to take out adequate insurance. Only a small percentage of the population lives in flood-prone areas. Is it fair and reasonable for the entire population to fund a small few?

Whelan answers thus:
Advocates seeking to adopt this new flood levy are also pondering whether to introduce a special new fund such as the one that was set up in New Zealand and invoked after last year's earthquake disaster in Christchurch. The ICA does not believe such a commission is warranted in Australia. The insurance industry has proven on numerous occasions its ability to assist communities to recover from natural disasters.
We believe there are fairer, more efficient ways of dealing with these natural disasters. Australia already has a highly competitive general insurance market and consumers simply need to shop around to find the product that suits them.

So there is no such thing as market failure. The competitive market is doing and maintaining a competitive general insurance market in Australia should be central to this critical debate.

The ICA wants the government to do flood mapping for it.