Standard flood definition raises too many uncertainties

3 September 2008

The Australian Competition and Consumer Commission today issued a decision denying authorisation* to a proposal by the Insurance Council of Australia for a common definition of 'inland flood'.

"The ACCC supports efforts to establish a common definition of flood that is widely understood by consumers and can be used as a benchmark for flood cover in insurance policies," ACCC Chairman, Mr Graeme Samuel, said today. "However, the definition proposed by the ICA is unlikely to achieve this aim.

"The Australian community has experienced a number of severe floods in recent years. These events have focussed a spotlight on the need to improve consumer understanding of what the term 'flood' means in insurance policies and the extent to which particular policies include flood cover."

The ICA has developed a definition of inland flood which insurance companies could voluntarily adopt, and sought the ACCC's authorisation for this definition.

The ACCC consulted widely on the definition of inland flood put forward by the ICA. Significant concerns about the proposed definition of flood have been raised by a range of consumer bodies including the Consumer Law Action Centre, the Consumers' Federation of Australia, the Insurance Law Service, the Legal Aid Commission of New South Wales, and Legal Aid Queensland.

A number of consumer groups with experience representing consumers in disputes about flood cover in insurance policies raised concerns about the terminology chosen by the ICA.  These consumer groups argued that the ICA's definition would in fact increase consumer confusion about the meaning and nature of flood cover rather than improving consumer understanding. The ACCC is particularly concerned that the ICA definition of flood introduced a range of new concepts the legal implications of which are not clearly understood.

"The ACCC recognises that this is a complex issue and encourages the ICA to work with consumer groups and other interested stakeholders to develop a common definition of flood that will make it easier for consumers to understand what the term flood means and the extent to which their individual insurance policy covers them for flood damage," Mr Samuel said.

This decision does not prevent the insurance industry from seeking authorisation for a revised proposal in the future.

The ACCC's determination will be available from the ACCC website, under the Public Registers and Authorisations Register links.

*Authorisation provides immunity from court action for conduct that might otherwise raise concerns under the competition provisions of the Trade Practices Act 1974.  Broadly, the ACCC may grant an authorisation when it is satisfied that the public benefit from the conduct outweighs any public detriment.  The ACCC conducts a comprehensive public consultation process and issues a draft determination before making a decision to grant or deny authorisation.

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