Bruce Billson (Dunkley, Liberal Party, Shadow Minister for Small Business, Competition Policy and Consumer Affairs) Share this | Link to this | Hansard source

Madam Acting Deputy Speaker, what a treat to be able to speak with you again this evening and convey the coalition's support for the Insurance Contracts Amendment Bill 2011. In speaking to this bill, I would like to make a few points about the legislation itself and the events that gave rise to it. The coalition, along with the rest of Australia, watched on in disbelief in early 2011 as a series of tumultuous weather events hit Australia. It was a reminder to us that we live in a nation of searing droughts and flooding rains and that, as a nation, we often feel the full effects of Mother Nature at her most angry.

Members of parliament, including me, lent a hand to friends and strangers alike in the clean-up efforts for both the floods and the cyclones. It was heart-wrenching to see homes and businesses ruined, lives shattered and, tragically, in some cases lives lost. I went to join my friend and colleague Mr Tehan in his community to visit and speak with small business owners in Skipton and to help with the clean-up of a significant house that played an important part in Henry Bolte's early life. The whole town of Skipton had virtually been inundated by floodwaters. Few things could be worse than losing your home or your business. All sides of politics in this place share a common goal of wanting to see these towns and regions get back on their feet as soon as possible.

The coalition never begrudged spending federal money on reconstruction after the floods and Cyclone Yasi. We supported the spending of $5.6 billion to rebuild the communities and the infrastructure they depend upon. Where we differed from the government was in the levying of a new tax on Australian families in the form of a flood levy. The government and the Prime Minister had already called on Australians to donate their money and to volunteer their time, and they did in droves and they did generously. Australians heard the call loud and clear. We can all recall the TV footage of teams of ordinary Australians shovelling and mopping and removing debris. Sometimes they were even helping complete strangers, but it did not matter. They wanted to help out in this time of great need for people they often had not ever met before.

But then, having voluntarily donated their time and money, the government hit them with a new tax. It is unprecedented in Australia's modern history for a government to beg Australians to donate generously with their money and their time and, after they have done so, to then hit those very same people with a new tax. It is unprecedented but, sadly, it is typical of today's Labor Party. They never lose an opportunity to impose a new tax. It was the coalition which did the heavy lifting to identify $2 billion of savings that would have allowed the government to fund the reconstruction without increasing the tax burden on all Australians. That was the fiscally prudent thing to do. The reconstruction package, which we welcomed, did not cover all of the financial needs. It did not cover the cost of homes and businesses destroyed by floods. This was left up to the insurance policies of individuals and businesses in affected areas.

Unfortunately, many Australians were left high and dry by their insurance companies. Some people thought they were covered for the water damage to their property, but it turned out they were not covered for the type of event that occurred. There were disputes about the differences between stormwater and flood. There were disputes about different kinds of flood. In my travels to New Farm, outside Brisbane, and to the community of Skipton, I learnt of concerns about the definition of interruption to business in insurance. The causal factor was once put to a business not to have been the floods but an electricity serviceman turning off the electricity. It did not matter that the substation was about to be inundated. This was used as a justification to deny cover.

So the definitions were complex, confusing and did not help consumers to fully understand the explicit events for which they were covered. We were apprised of many examples where assurances were given but proved not to be sustained when the need for support through insurance coverage was called upon and needed most. Those words of assurance proved to be hollow and did not represent what consumers understood to be the cover that they were paying handsomely for. These events showed that clarification and certainty are needed for Australian insurance holders.

The coalition welcomes this move to introduce a standard definition of 'flood' and a key fact sheet on insurance contracts. It would be surprising if we did not support these reforms since they were the coalition's idea. Last February—fully a year ago—at the Queensland Media Club, my friend and colleague the shadow Treasurer laid down seven key reforms that were required to ensure the confusion and financial loss would never occur again. The first step was to require insurers to communicate clearly to policyholders the terms and conditions under which they are covered for flood or other prescribed natural disasters and the compensation and support they would receive in the event of such disasters. Mr Hockey suggested this could be done via a leaflet in the annual policy renewal. To their credit, the government have tried to achieve this through the key fact sheet proposal embodied in this legislation. Unfortunately, they have omitted crucial information from this bill, a point which I will return to in a moment.

Mr Hockey outlined a second step, which was to improve national flood-mapping data. This would allow the insurance industry to better assess and price flood risk. The need for this national flood-mapping data has become even more evident since the time of the floods. In my own community, on Melbourne's Mornington Peninsula, we have a number of watercourses—Kananook Creek and the wetlands—in the vicinity and they have long been a source of great pride for our local community. Now, and it is quite unexplained, those attributes and assets are being held out as a justification for astronomical increases in insurance renewals. A constituent of mine, Dianne Tame, is one of the residents affected and she and a number of her neighbours in Clovelly Parade, Seaford have been subjected to tenfold premium increases on the basis of alleged new flood risk. When contacting her insurer she was told that the flood mapping that was used and was relied upon was provided by the local council. Concerned about this, Ms Tame and her neighbours contacted Frankston City Council, only to be told, 'What a load of codswallop.' The area in which they lived had not been identified by the local authority as being flood prone and there was no information to suggest that it had at any stage in the past been—or would in the future be—declared as such and the source of the declaration or evidence or information being relied upon by the insurance company had not been provided by them. We have gone back to the insurance company to pose the question about how they did arrive at their designation of this particular area as flood prone.

A similar episode has happened up in the Goulburn Valley area, and I wonder whether this is a tactic of some insurers seeking to price themselves out of the market so as not to carry the risk of this kind of insurance into the future. It still remains a mystery how areas of the City of Frankston have been designated as potentially likely to face inundation when there is no such evidence to support such a conclusion. We will continue to pursue that to find out just where this information has supposedly come from.

The third step that Mr Hockey outlined was to require local councils to review the appropriateness of construction of homes and businesses in flood- and fire-prone areas. What is required is better land-use planning. The fourth reform was to request the Council of Australian Governments to review building standards with a view to making buildings more resilient to natural disasters. We have gained many insights into the robustness of building styles, designs and construction techniques as a result of these very challenging experiences of late. Step 5 was to raise community awareness, with governments to coordinate the issuing of regular reminders of the risk to all households and businesses in flood- and fire-prone areas, and also to develop and issue flood and fire action plans to at-risk households and businesses.

The sixth reform was to require state governments to mandate that all sellers of residential and commercial property include advice as to the risk of flood, fire and other natural disasters in the sale documents. And the final step was to investigate investment in new or upgraded dams or levees to provide additional contingency mitigation from the effects of flood. This should consider the additional benefits of dams as storage for urban, agricultural, manufacturing and mining water supplies and as a source of low-emission power.

These are constructive steps that could readily be adopted by the industry and by the various tiers of government. They would go a long way to avoiding the uncertainty faced by many Australian insurance holders in the aftermath of natural disasters. Most importantly, they are crucial steps in managing the risks to ensure random events such as floods have less of an impact on the financial standing of households and businesses. They also add to the evidence base against which insurers can price risk and therefore offer competitive insurance policies to the Australian public. The risk of overpricing risk is that the insurance coverage becomes too expensive so fewer Australians would take out this important protection of their financial and property interests.

This bill is an example of a government that has finally found religion on coalition economic policy—and I wish it would happen more often on issues such as debt, deficit and banking reform. While the coalition is supportive of the principles of this bill, we believe it is deficient in two respects. Firstly, it has taken 12 months to finally bring this important legislation before the House. This is too slow. In that time we have seen another round of floods in Queensland and New South Wales. Households and businesses in the affected areas would have slept easier at night if they had had an answer and some assurance on these reforms.

The second shortcoming is that there is no standard definition of 'flood' actually in the bill. The definition will be contained in regulations yet to be made. The Assistant Treasurer has issued an exposure draft of the regulations regarding the standard definition of floods, but the final definition is yet to be released. There can be no parliamentary scrutiny of the definition. Members of the House voting on this bill are being asked to take it on trust that the definition will be adequate. Members who represent flood-prone seats cannot provide absolute assurance to their constituents that the government has got it right. The absence of a definition creates more uncertainty. This is counter to the intention of the bill, which is to reduce confusion and to ensure policy holders have an understanding of what they are covered for and, perhaps even more importantly, what they are not covered for. Instead of providing certainty, the government has created uncertainty.

A further shortcoming of this bill is that key information about the key fact sheet for insurance contracts is yet to be disclosed. For example, we do not know if all insurers will need to provide a fact sheet for new policies, or whether it only has to be provided when specifically requested by the policyholder. Again, the missing information will be contained in the regulations. To make a particular point of this, I note that the Treasurer issued a discussion paper on the key facts sheets provisions on 29 February 2012, with submissions closing on 23 March 2012. Yet here we are, on 13 March, being asked to debate and make a decision on the legislation without key facts and supporting information that go to how this bill will actually work. In many ways the success of this reform will be determined by the crucial details which are yet to be announced. I have touched on earlier examples where, even where the definition of flood is known, the interaction with other provisions impacting on insurance policy coverage and the protections being purchased needs to be teased out in more detail. Interruption of business insurance is expensive, but to find it cannot be relied upon when needed comes as a great additional shock to the many small business people I have spoken with since these natural disasters.

Overall these are sensible reforms. However, they should have been more timely and more of the crucial detail should have been contained within the legislation. Notwithstanding these shortcomings, the coalition will support this bill. We hope that the government can be true to its word and that the detail yet to be provided is consistent with the ambition and the statements the government made when introducing this legislation.

Shayne Neumann (Blair, Australian Labor Party) Share this | Link to this | Hansard source

I speak in support of the Insurance Contracts Amendment Bill 2011. I thank the member for Maribyrnong, Minister Shorten, and the Prime Minister for their support for me personally and for my community during the flood. I represent most of Ipswich and the whole of the Somerset region. The floods in January 2011 affected 1,500 homes and 473 businesses, many of which were agribusinesses, in Ipswich. They affected 530 houses and 400 businesses, about 279 of which were agribusinesses, in the Somerset region. These regions really were hard hit as the Bremer River, the Brisbane River and the release from the Wivenhoe Dam raged across the Brisbane Valley, the rural parts of Ipswich, into the Ipswich CBD and down into Goodna, in the electorate of the member for Oxley.

This legislation will not solve every single problem that the people of the Somerset region and Ipswich have suffered. They continue to suffer emotional and psychological trauma. Doctors tell me they still see patients who have been traumatised by the floods. In many ways people are still getting back on with their lives. If you drive through some parts of my electorate at night you still see large numbers of houses without lights. People have moved away from those areas. I will give an illustration: 550 children attended Ipswich East State School; there are now 450. Its catchment is in the very flood affected areas of Bundamba, Booval, North Booval, East Ipswich and Basin Pocket. I was at the school recently and spoke with the kids in the classrooms. There were school captains and many kids in years 6 and 7 living in flood affected communities.

I read an editorial in an issue of the Queensland Times newspaper published directly after the 1974 flood. Ipswich in those days had 74,000 people; now it has over 175,000 people. The editorial said that we have to learn the lessons, take action, move on and not allow the same mistakes to occur again. Sadly, we did not learn every lesson we needed to, and the consequences are that people are still suffering. We hope that these legislative changes will make a difference, that they will bring simplicity to the law and conciseness to the people's understanding of their legal rights. I think that the key facts statement and the clear simple definition of flood will go a long way to solving this problem.

The insurance industry has a lot to answer for; it really does. I am a member of the Standing Committee on Social Policy and Legal Affairs, and I spoke earlier this evening in the Federation Chamber in relation to our report In the Wake of Disasters, which has 13 recommendations. Once again, I urge the government to take up those recommendations and to have a strong cop on the beat with ASIC, the regulatory and monitoring authority, in relation to the insurance industry. It should be not just a licensing authority but a monitoring authority with tough sanctions and tough enforcement to make sure that insurance companies honour their code of practice not simply in the breach but actually in observance, and that there are penalties. Sadly, that is not the case. The code of practice needs to be complied with in flood situations. It needs to be mandatory and it needs to be across the whole industry. We welcome the moves by the Insurance Council of Australia to take some small steps along that way, but it is simply not good enough. I hope the government takes up the recommendations we have made.

One of the big problems we found in my community was caused by the definition of flood. People just about needed a master's or a doctorate in law to understand the definition. I looked up my own insurance policy with Ansvar—I think I am pretty well educated, and I practised as a lawyer for a long time—and saw that the word flood was mentioned a couple of times. I found I did not have riverine flood coverage. Sometimes people looked at a policy and then had to look at a website and then look at some other part of the policy. It was difficult for them. Hydrologists were a challenge at times. Another big problem we had—and this is where this legislation will help in some way—was defining what a flood was. Was it flash flood? Was it stormwater? Was it rainwater run-off? Where did it come from? How were you affected? Businesses and homes were affected by this. Was it riverine or inland water flow? Was it caused by a creek, the Bremer River or the Brisbane River? Was it caused by Deebing Creek or Bundamba Creek or did something else cause it? It was often difficult. It did not matter whether you were a church, like the Salvation Army at Bundamba, or a business like Llewellyn Motors or the flower business of Coral and Kevin Larsen at Fernvale; it was all a challenge and it was difficult for people to understand. At times it was uncertain, and people did not really know where they stood. It is important that we amend the Insurance Contracts Act and the law in relation to these issues because the Insurance Contracts Act is the main legislation governing insurance contracts in this country. It came into being in 1986. Under an insurance contract, the parties must act in the utmost good faith. I do not think that has always been the case with insurance companies in how they have dealt with people. Facts need to be materially given if they affect the mind of a prudent insurer in determining whether to accept insurance.

The intent of the Insurance Contracts Act was to improve the flow of information. That has not always been the case. People have often felt traumatised by the flood and then traumatised by the claims-handling process. They were not always told about their rights. Sometimes they were, regrettably, dissuaded from making claims. At other times they were not given the information that they needed. These are really big problems in the area of insurance. They were not often give information about internal and external dispute resolution processes or their right to contact FOS or where they stood with legal aid. All of these issues were not necessarily covered.

I think a standard definition of flood would make a big difference. In fact, it is not the shadow Treasurer but the member for Maribyrnong who has led this charge on behalf of the government. He came to my electorate. We did not have any CEOs of insurance companies come to my electorate of Ipswich for the two fora we put on. The CEO of the Insurance Council of Australia came on those occasions, to his credit, and stayed for a short period of time on both occasions. But no-one came to Ferndale in the Brisbane Valley when we put one on with Senator Joseph Ludwig. The definition of 'flood' that the minister is proposing means the covering of normally dry land by water that has escaped or been released from the normal confines of any lake, river, creek, natural watercourse—whether modified or not—reservoir, canal or dam.

It has taken a lot to rebuild Queensland, my home state. But the insurance companies really had the capacity to play ball and to cooperate more fully. The insurance industry in this country—and the big players are Suncorp, IAG, QBE Insurance Group and Allianz Australia—had the capacity. They have a total asset base of about $130.9 billion. They had a revenue of $42.1 billion and a profit of $5.6 billion in 2011. This was at the height of the impact of Cyclone Yasi in North Queensland, floods in rural Victoria, floods in Western Australia and terrible floods in Ipswich, Brisbane, the Lockyer Valley and the Brisbane Valley, and they were still making $5.6 billion in profit in the industry. They are not exactly short of a quid, so they can come to the party and take a more community approach with respect to their social and community obligations to people.

It is important to legislate to increase consumer protections and consumer knowledge. A key facts statement is particularly important. I know that Minister Shorten, the Minister for Financial Services and Superannuation, made that point very clearly when he announced that a key facts sheet on home building and home contents insurance policies would become mandatory for all home building and home contents insurance policies. He said this—and I agree with him:

Too many people are confused by lengthy insurance contracts and product disclosure statements.

The key facts sheet will provide clarity on what is covered by home building and home contents insurance policies and will make it easier for people to compare different policies. People are entitled to know exactly what is and what is not covered under their insurance policies. The deadline for submissions in relation to that key facts sheet is 23 March 2012.

The member for Dunkley was quite critical of us in relation to the flood levy, but the flood levy was necessary. Let me give you a couple of illustrations. In terms of raising money—and people gave incredibly generously of their time, their effort and their money—even in a city like mine, with a pretty spectacular mayor in Paul Pisasale, who has a great capacity to raise money all over the place, there was only about $2 million to $3 million raised in the Ipswich mayor's flood appeal. In the Premier's flood appeal, far less than $300 million was raised. But we know it will cost about $5.8 billion to rebuild after the floods, cyclones and disasters. Where are we going to get the money? Realistically, do you expect people to put their hands in their pockets yet again? It was a necessity for us to do a flood levy. The member for Dunkley criticised us in his speech in relation to this, but I do remember the Leader of the Opposition on national TV saying in the next day or so he would come up with how they were going to come up with the $1 billion and not agree to the flood levy. One day went past, two days went past and then a couple of weeks went past and there was a kerfuffle in the coalition party room in relation to this issue. They could not come up with $1 billion. How in the world they are going to come up with $70 billion to get themselves back to where we are I will never know. How they are going to pay for their paid parental leave scheme is another story entirely. Eventually they had to go to the One Nation play book. That is how they eventually got it—through the deferral of foreign aid. In the end, if they followed their policy, they were still left with problems.

Sharman Stone (Murray, Liberal Party) Share this | Link to this | Hansard source

Madam Deputy Speaker, I rise on a point of order. I believe that the speaker is straying quite substantially from the topic of this bill.

Ms Anna Burke (Chisholm, Deputy-Speaker) Share this | Link to this | Hansard source

The member for Murray will resume her seat. I do believe the speaker has strayed quite substantially as well, but I am the one who determines these things. The member for Blair should refer to the bill before the House.

Shayne Neumann (Blair, Australian Labor Party) Share this | Link to this | Hansard source

I will. I took the opportunity to rebut the absurd and outrageous claims of the member for Dunkley in relation to it.

There are amendments in this legislation. We are doing it, as the member for Dunkley did say, through standard definition by regulation. I do not see those opposite taking any great exception in relation to these issues when it comes to other regulations. A standard definition of 'flood' for riverine flooding and other types of flooding that covers small businesses, strata title and home building and contents is not an outrageous, ridiculous thing to have. A key facts statement that is allied to a product disclosure statement also will provide consumers with key information regarding home and contents insurance, whether these are combined or individual. This matter was referred to the House of Representatives Standing Committee on Economics back in November 2011. The committee released its advisory report on the Insurance Contracts Amendment Bill in February 2012 and recommended that we pass the bill. That also was the recommendation of the Standing Committee on Social Policy and Legal Affairs in its report, which was handed down in February.

There are important reforms here. We are doing other things apart from those. We have taken the initiative on flood mapping and data with a portal and information that is available to people. We think this is particularly important. We have made the point that councils need to have that kind of information available to consumers and ratepayers because, when you talk of thousands of people being affected in a community like mine, the impact on people's lives is incalculable. This legislation is in the best interests of my community. I have no doubt it is in the best interests of Queensland and our nation. I support the legislation.

Sharman Stone (Murray, Liberal Party) Share this | Link to this | Hansard source

As we speak in this chamber tonight about the Insurance Contracts Amendment Bill 2011, the small community of Barmah is bracing itself for floodwaters which could wipe that small town out. That community has come at the end of a long string of small towns that have experienced floodwaters over the last 10 days. Just up the basin or flood plain from them is the small town of Nathalia, which has received national attention as it battled its floodwaters with an innovation of a large aluminium levee, admittedly a levee supplemented by some 300,000 sandbags. But the town of Nathalia refused to evacuate. The vast majority of people fought to have its houses and industry saved from the floodwaters. Then there were Tallygaroopna, Congupna, Katunga, Katamatite, Tungamah, Naringaningalook, Shepparton East—those small communities were all in the last 10 days or so fighting for their homes, for their businesses, for their farms and they would have been so grateful if years ago this government had got around to a common definition of flood.

The definition of flood is one of the key components of this bill tonight. We so much need a nationally agreed definition of what a flood actually is. We have found that insurance companies play with the terms and hope that they can get away with a flood definition that they do not have to pay out on, for example, a 'storm event'. So many of my constituents cannot get flood insurance because they live on a vast flood plain. But when you have, as we did in this instance, 12 inches of rain over three days—that is, 300 millimetres, nearly the annual rainfall, in just three days—that is a storm event when it falls down upon your home. The roof of your house takes in water and it is a storm event. But we are finding already that different insurance companies are saying: 'We are very sorry. We know you are in deep strife there—you have lost your place; you have been under water for 10 days and will be under water for another couple of weeks—a metre at least, perhaps two—but we're quite sure that we won't be able to do anything for you.'

This is a serious problem in Australia. We are a place of droughts and flooding rains; we understand that. But we must have a standard definition of flood, and that is the main purpose of this bill, as I said. We are very much looking forward to seeing how that definition will be worded. We have to be satisfied that the definition chosen is adequate, and there are some recommendations from various inquiries about how that wording might be framed. It is a shame that we could not have seen that definition in advance to be able to be more comforted by this bill before the House tonight.

The second component of this bill is the provision of a sheet of key facts to be given to policyholders. This is also a very good idea, and we support the concept. But we want to know more details. We need to be sure that the regulations that go with this bill identify through the key facts sheet the different terms by different insurers. Is it something that is supplied annually with the renewal of a policy? Is it something that you would find if you seek it on a website? How is the key facts sheet to be supplied? Is it going to be guaranteed to be in plain English? Are we going to have someone oversight that, if there are complaints about it still being so complex that you need a legal opinion to define just what is contained in the key facts sheet? We support both of these elements of the bill. We just wish there was more detail at this stage to be sure that we are going to get something right.

The other problem with this is that these are baby steps. I was very pleased to take part in a recent inquiry by the House of Representatives Standing Committee on Social Policy and Legal Affairs into the operation of the insurance industry during disaster events. Volume 1 has been tabled and it is a very excellent report. We just wish that this bill had contained some of the recommendations that we found were very important as we went all through eastern Australia and into Western Australia looking at the disasters that had occurred in the last 12 months to two years.

When we looked at the responses of different insurers, we found so much evidence of insurers who were delaying assessors arriving and different insurers having different decisions about the type of disaster event for different claimers in the same street, as was the case in Queensland. We found people still waiting for assessors to arrive 12 and more months after the initial event.

I am not surprised at that, but it was shocking when one of my constituents from Shepparton East, after 12 inches of rain fell on her home in just two to three days, contacted RACV, her insurer, asking urgently for an assessment and was told, 'We really think this is probably a flood, so your claim is probably not going to make it and, by the way, we are very busy and we won't get an assessor near you for at least 12 months.' This is extraordinary. The woman making the call was pregnant; she needs a home for her family. She needs to have her house fixed as fast as possible. Her husband is very concerned that, if they have to wait 12 months for an assessor, they are not going to be able to get good value for money, and what are they going to do about their family's living arrangements in that intervening time?

The insurance inquiry undertaken by the House of Representatives Standing Committee on Social Policy and Legal Affairs recommended, for example, that we must have a national flood overlay that means that insurance companies do not simply employ anyone that they like to call a hydrologist and then, no matter what their qualifications, take that assessment of the situation as either supporting the claim or ruling it out of order completely. We recommended that claimants had to be informed about the qualifications, the employer and the role of external experts that are appointed by their insurers to help interpret their claim. We recommended a maximum of 12 weeks for external experts to provide the reports.

In relation to the floods now devastating parts of my electorate, some of my claimants, in contacting their insurers, have been told, 'We're busy and it will take a very long time to get to you.' That is not good enough in this time of emergency. We recommended in our inquiry a maximum time frame for accepting or denying a claim. We recommended a time frame for responding to requests for information—not just a call centre to tell people over the phone that they were not likely to succeed with their claim and, really, not to bother anybody again. We recommended an undertaking to communicate all decisions about insurance claims to the claimant in writing, with clear and explicit reasons relating to that particular claim. We recommended a time frame for informing claimants of the progress of their complaint or dispute.

That would all seem to be common sense, but, come a disaster, the insurance industry is allowed to ignore its code of conduct. The code of conduct is in fact not mandatory; it is just voluntary. Therefore it is the goodwill of insurers as to whether they take any notice of their code of conduct at all. Through our inquiry and also through the two floods that have devastated my electorate in the last 14 months, I have found that insurers will very often do all they can to ignore the code of conduct, whether it is during an emergency or not.

We also found that insurance companies were not telling their claimants about the internal dispute resolution processes within their company nor about the Financial Ombudsman Service, which is specifically paid for by the insurance industry to investigate claims that have not been resolved to the satisfaction of everybody. The Financial Ombudsman Service was the best-kept secret when it came to claimants and what they were trying to progress as they battled the insurance companies for a fair deal.

This bill, as I say, is baby steps in the right direction, but a lot more has to be done, and most urgently. We really do need that national flood overlay. There was a recommendation in the Shorten inquiry that it be a web based data set, perhaps maintained by Geoscience Australia. That is so important in a country like ours, which has numerous flood overlays provided, some by catchment management authorities and some by local government agencies. Some are very old and out of date. Some are now out of date because levees have been built or removed since their time of initial development. I would argue that these flood overlays are as important as the common flood definition, and of course easy communication in the sense of a key facts sheet is just common sense. It seems extraordinary that we have to legislate for an insurance company or any business at all to provide a key facts sheet to its customer or its clients in something as important as insurance.

I want to pay tribute to those who are struggling with the floods in northern Victoria as we speak because many of them know that they will never be able to insure against flood given their location and their topography on the great northern Victorian floodplains. As a nation we have to consider what those businesses, large and small, are going to do when it comes to being devastated by a once-in-100-year event like we are currently experiencing. The Nathalia abattoir was inundated just 10 days ago. Riverland Oilseeds in the town of Numurkah was affected. The hospitals at Nathalia and Numurkah were both isolated by floodwaters, with Numurkah hospital being seriously damaged by floodwaters. If those places cannot buy flood insurance or if it is offered at prices that are totally unacceptable in terms of the high cost, what are we going to do for them in order to ensure that they can be sustained over a longer period of time?

There is a failure at the moment in the insurance sector where companies like RACV and CGU are now deliberately trying to get rid of numbers of their policyholders by 200, 300, 400 or 500 per cent increases in premiums, hoping that those people will simply go away, because they just do not want to carry the risk anymore. What do those particular home owners do? They live on a floodplain, they farm on a floodplain or they have some other enterprise there and they do need to be able to ensure that they can rebuild, regroup and sustain their enterprise after this one-in-100-year event.

We lost about $2 billion worth of livestock and infrastructure in the floods of January-February 2011. The bill for this flood will probably be similar. When I flew over the area on Monday and when I drove around, as I have done over the last week, past the dead and bloated sheep floating in the floodwaters, past the fodder rolled up against the fences, past inundated dairy farms and past all of the homes that are now severely damaged, with one metre of water or more having gone through them, I kept hoping that the insurance companies to which people had been paying premiums for sometimes 20 or 30 years would look very hard at the event which led to this inundation: the three days of rainfall equivalent to an annual rainfall in our normal years. I know that already there are battles going on between policyholders and the insurance companies. I just want to give a couple of examples of the sorts of problems that we are having in my part of the world. For example, in Mooroopna, where we have had the flood very recently, I have had people who own homes discovering through their bank accounts that thousands of dollars extra had been taken out and that the cost of their insurance policy had gone up from, say, $500 to over $5,000 without their being properly informed that that had been the case. The direct debit had simply alerted them to the fact that they now had a lot less money in their bank account than they had assumed was there.

We really do have a problem with insurance in Australia. We have insurance companies that do not have a mandated code of conduct. We allow that code of conduct to be flouted completely in a time of disaster. We need to look at the recommendations of the report called In the wake of disasters, the House of Representatives Standing Committee on Social Policy and Legal Affairs report. This bill is, as I say, just baby steps and long overdue. The definitions of flood should have been made at least two or three years ago. The key statement of facts of course should happen, and it is almost childish having to make legislation in that regard. A lot of recommendations have been made through a number of reports. I am hoping that this government understands the importance of this sector and the fact that businesses and homes depend on decent insurance coverage at an affordable price and that we move on to make a great number of new pieces of legislation work, which will bring about a better outcome for all Australians and make them sustainable.

Julie Owens (Parramatta, Australian Labor Party) Share this | Link to this | Hansard source

I am actually really pleased to stand to speak on these amendments to the Insurance Contracts Act. It is in many ways a very technical bill. It deals with a very, very important matter, which is the way in which consumers are informed when they take out an insurance policy and the extent to which they understand the nature of their coverage. But the bill itself is quite technical. It deals with two aspects of the many reforms underway in terms of insurance in Australia, particularly a standard definition of flood and a key facts sheet. But rather than deal with those specifics which will be covered in the regulations, it deals with the way in which those elements are handled.

It deals with what insurance companies have to do with the standard definition; whether an insurance company can exclude high-risk items such as jetties or seawalls; what lead-in time is necessary for insurance companies to make the adjustments necessary to put this in place; and in terms of the key facts sheet, whether it is an electronic copy or whether it needs to be a hard paper copy; when it needs to be given out; whether it needs to be given on a cover note; and whether it needs to be given out every time a person changes their insurance. There are lots and lots of technical aspects that define the way in which the standard definition and the key facts sheet actually work in practice. Again, these are very important technical details because they will support some very important changes in the insurance industry particularly in relation to flood.

The changes that we are talking about today came about, as all of the speakers have said so far, because of the significant natural disasters during 2010 and 2011. When the major floods first started happening just before Christmas last year, I was actually out camping in a national park out of mobile phone range on my way up to Carnarvon Gorge. I did not realise that it was happening. Fortunately, I stopped at my parents' place and we did not quite go as far as we were intending. There were people helicoptered out from our next stop the next day, so we were lucky in the end. We got out of our parents' place the day before the road was closed and we drove through very shallow water most of the highway back. We only just made it back. We were some of the very lucky ones. Many, many others of course were nowhere near as lucky.

The aftermath of the flooding revealed that many people had inadequate or no insurance cover. The worst part of that is that many of those people thought that they did have appropriate cover only to find out, on top of the loss of their home and possessions and in many cases people that they loved, that the insurance cover they thought they had was in fact non-existent. That was the primary stimulus for the government putting together the National Disaster Insurance Review back on 4 March 2011. That review had a very serious look at the nature of insurance cover in Australia and made some 47 recommendations.

In parallel to that, the government also released a consultation paper called Reforming Flood Insurance: Clearing of the Waters in April 2011. The purpose of that was to engage the community in suggesting improvements to the regulatory framework and other aspects of Australia's insurance market. The paper contained two key proposals which were designed to improve clarity for consumers in relation to insurance policies and in particular the cover provided for various types of flood, namely, a standard definition of flood and a key facts sheet to outline the key information in relation to home building and home contents policies. The Insurance Contracts Amendment Bill implements those two proposals.

Its purpose, essentially, is to make it easier for people seeking to take out insurance to understand what it is that they are insuring their homes for. It also covers home building, home contents, small business and strata title insurance. It covers that group of people who are less likely to engage insurance brokers who, in most cases, wade through the product disclosure statements themselves, or do not in many cases. So it is particularly targeted at people who need help in working their way through what are incredibly complex documents.

As the member for Blair said in his speech, these product disclosure documents can be quite onerous. I also, like the member for Blair, think of myself as fairly confident when it comes to taking care of these things. I recently found myself in a situation where I had a bit of water damage in my home—not due to any external activity but a leaking pipe—and I found myself not knowing whether I was covered either in spite of my thinking that I was so clever and so on top of these things. I turned out to be covered but it could just as easily have gone the other way for me. When I sit down now, as I am doing at the moment, to review my insurance policies across a range of things, I realise that it is really a two-day job by the time you sit down and work your way carefully through these rather long documents, particularly if you want to compare one policy with another. It really is a substantial task indeed. Again, anything that we can do that makes it easier for people who have the good intention of covering themselves well to do that is a very good thing. One of the problems with the current flood definitions used by insurance companies is that there are three broad categories of flood. There is stormwater rainfall run-off, sometimes called 'flash flooding' and so the word 'flood' appears in definitions relating to those. Usually the term refers to high-intensity short-duration storms which produce localised flooding and most insurance policies but not all of them cover this risk—again, the words 'flash flooding' might appear under current regulation. Then there is the riverine inland flooding, which is inundation caused by watercourses or catchments overflowing their banks due to long duration rainfall over large areas. Some insurers provide cover for this risk, but many do not. Whether it is included or excluded in the definitions of this can vary greatly. The third category is actions of the sea, sea level rise and storm surge, which is inundation caused by movement of seawater. Few insurance policies cover this risk and we have seen people particularly on rivers closer to the ocean that were caught in the definitions of flood where insurance companies saw in some cases that it was tidal rather than riverine. So there are three basic definitions. For a person in the street it is hard for them to see how those definitions are clear. It is very easy to see how a person reading through a very lengthy product disclosure statement, who is not familiar with the way insurance companies think of these three types of flood, could be confused by what their insurance policy does or does not cover.

The standard definition of 'flood' does something really simple. It means that if you use the word 'flood' you will be referring to riverine or inland flooding, according to the definition in the regulation. So if you use the word 'flood' at all in the insurance policy, it will refer to that definition, which means that things like stormwater rainfall run-off and actions of the sea may be covered separately but they will use different terminology. It clarifies quite substantially what is covered in an insurance policy. Under current law the term 'flood' is not defined in the act, which results in insurers defining the terms in different ways, as I just described. Under the new law, insurance providers will be required to use a standard definition of the term 'flood' in all cases for home and building contents, small business and strata title insurance policies and their supporting documents. The term 'flood' will be defined in the regulations.

The key facts sheet is also something people wanting to compare insurance policies or wanting a clear picture of what they are covered for will find very useful. It is a short statement of one page which outlines what the insurance policy covers, what is not covered, the cooling-off period, what type of cover is offered under the policy and an explanation of how the key facts sheet is to be used.

Under the current law, the existing disclosure obligations in the Corporations Act require an insurer to disclose information in a product disclosure statement, which again can be quite long. I think my home and contents one is 47 pages. Last time I asked my insurance company about flood insurance, they told me that I could probably find it on page 22. I am not sure I would have got to page 22 if I was in a hurry. Many people are in a hurry when they take out insurance policies. People move home, people buy a home, people move into a new flat and they quite often find themselves wanting to cover their contents quite quickly. So there are many reasons why we do not get to page 22 of our product disclosure statement.

The new law, in addition to that existing product disclosure statement, requires the insurer to provide a key facts sheet, which outlines the information I described before. There is widespread support for these amendments. It is something the community has wanted for a long time and it is that business supports. In submissions to the Economics Committee's inquiry, industry was highly supportive of both the standard definition of flood and the key facts sheet. The National Insurance Brokers Association commented as a general statement that they support both of the initiatives—the standard definition provisions in relation to flood and the key facts sheet. Similarly RACQ Insurance supported both measures. The Insurance Council of Australia commented that they strongly endorsed both of the initiatives—the standard definition of flood and the key facts sheet—and in addition to the industry groups, the Consumer Action Law Centre was also highly supportive of the initiatives. It is worth quoting them. They stated:

We understand that there is now broad agreement on the proposed definition of flood. This is something we strongly support. We believe that a standard definition will assist in reducing disputes about when someone who experienced a flood is or is not covered. Key facts sheets, which are designed to provide simple and accessible information about a policy so that a consumer does not have to wade through hundreds of pages of product disclosure, is also a good reform which, if implemented properly, will empower consumers in the marketplace to make more effective choices.

I might also comment on the extent of consultation that went into these amendments and the consultation which is still going on into the regulations for the key facts sheet and the definition of 'flood'. It was clear when in its public hearings the Economics Committee met with representatives from the Treasury, the insurance industry and the consumer groups that there had been substantial consultation. Industry raised some technical issues which were of concern to them and it was clear that the discussions with Treasury on finding answers to their concerns were well and truly underway. The economics committee agreed that a number of those issues were quite serious and that the consultation process to find answers was well underway. It was clear that the consultation process had been quite effective. Industry concerns were being taken into account. If you read the transcript, you will see that it was probably one of the easier public hearings, where for virtually every issue there was already an answer.

Debate interrupted.