Finding a common definition of “flood” for insurance policies

The general insurance industry has tried, for a number of years, to develop greater access to flood insurance products for Australian communities. In order to reduce consumer confusion, it is significant, through the “Flood Insurance Project”, that the Insurance Council has been working towards developing, what it refers to as, a “voluntary common definition” for inland flood.

Consumers need to be aware that what the Insurance Council of Australia envisages is that any common definition of flood arrived at would be adopted on a voluntary basis by individual insurers. To explain this point, the Insurance Council states that “insurers would remain free to offer coverage to alternative definitions for flood. However, consumers would be able to use the voluntary common definition as a reference point for comparison of the product actually being offered”.

In March 2008 the Insurance Council of Australia lodged an application with the ACCC seeking endorsement of an agreement to adopt, on a voluntary basis, the following definition that it proposed as a common definition for “inland flood”:-

“lnland Flood is the covering of land that is not normally under water by:
-water that overflows or escapes from a naturally occurring or man made inland watercourse (such as a river, creek, canal or storm water channel) or a water pool (such as a lake, pond or dam), whether it is in its original state or it has been modified; or
-water released from a dam whether it be accidentally released or intentionally released to control, mitigate, regulate, or otherwise respond to excess water, or
-water that cannot drain or run off as a result of water that is overflowing or escaping from an inland watercourse or water pool preventing the escape of water.”

The ACCC initially endorsed the Insurance Council’s proposed common definition – subject to a number of conditions being imposed: conditions to provide greater certainty for assisting consumers to understand the meaning of flood insurance as well as to improve the consistency of contractual terms dealing with flood insurance.

Following its draft determination, the ACCC then undertook further consultation with a number of industry/statutory bodies – the Insurance Council of Australia, ASIC, the National Insurance Brokers of Australia - and consumer representatives. On consideration of the submissions received, the ACCC concluded that some concerns could not be addressed by imposing conditions. The ACCC decided to withdraw its endorsement of the Insurance Council’s proposed common definition because of concerns related to:-

(a) “The terminology put forward by the ICA, in particular that the proposed common definition introduces new terminology, expands established concepts and seeks to diminish the doctrine of proximate cause”;

(b) “The ICA's proposed common definition, by potentially increasing consumer confusion, may inhibit the ability of consumers to make informed choices leading to an increased risk that consumers may obtain cover which is inappropriate for their needs.”

But, the impasse between the Insurance Council of Australia and the ACCC in failing to reach agreement for a common definition for “flood” suggests that there may be limitations in the effectiveness of the actual participatory process used.