Finding a common definition of “flood” for insurance policies

Finding a common definition of “flood” for the Australian environment is no longer simply an insurance issue - but a public interest issue. As a result, finding a common definition of “flood” requires a process that maximizes public participation. All sectors having common interests in this public interest issue, or likely to be affected by a common definition, must be effectively involved in the participatory process. Having an independent dispute resolver to convene the participatory process is essential for reaching mutual agreement.

Three separate sectors (or “alliances”) have been identified that are central for resolving any public interest issue conflict, such as finding a common definition for “flood”:(i) Sectors with an economic interest e.g. local government authorities; the Insurance Council of Australia (ii) Sectors with a special interest but with no immediate financial stake e.g. consumer groups; scientific professionals (hydrologists, climatologists, fresh water ecologists) and (iii) Community sectors that have to live with the outcome or decision. The participatory process should ensure that there is a balanced representation between competing interests in these three sectors.

Understanding the needs for resolving public interest issues is best illustrated by the comments made by a former Governor-General of Australia, Bill Hayden, when opening a National Conference on Public Issue Dispute Resolution: resolving controversial public interest issues, where parties hold competing interests, requires a participatory process that may satisfy the principles of the democratic ideal; the solution should be one that enables all parties to emerge with some sense of gain and certainly with the knowledge that their views have properly been taken into account by the ultimate decision-maker; decision-making responsibilities are to the general public interest and not merely to a sectional group.

Shared responsibility and joint action between the various sectors is very much a part of the global trend in contemporary participatory processes for resolving public interest issues. These procedural features help resolve information conflicts, a major cause of public interest problems.

For example, in the case of finding a common definition of “flood” in the context of the Australian environment, information conflicts are created by different opinions as to what information is relevant for the meaning given to “flood”.

In addition, the community needs to understand the meaning and application of the term “flood”, as defined in their policy, to avoid information conflicts associated with different interpretations of the common definition.

In order to find a common definition for the term “flood” - and to offset possible misfortune for consumers - the Insurance Council of Australia should now consider adopting a process that is based on accepted principles for effective public participation and conflict resolution; and is one that promotes public trust and confidence. This would lead to a sense of ownership in the common definition for the term “flood” arrived at and so facilitate its implementation by all sectors.

The position of the ACCC is very clear. Its earlier decision does not prevent the insurance industry from seeking their endorsement of a revised proposal for a common definition for “flood” in the future. The ACCC provided objective encouragement for the general insurance industry to do so.

The Insurance Council has stated (5 November 2010) that “Unfortunately…ACCC did not authorise insurance companies to adopt a common definition …Flood cover has now been developed by several insurers and there is no longer an opportunity for further attempts to implement a common definition as existing products would then need to be recalibrated and recast”. However, the severity and extent of floods throughout eastern Australia in 2011 warrants a new direction and vision by the Insurance Council to build on its past foundation and to take the leadership role for developing a common definition for “flood”.