Monday, October 3, 2011

Flood-risk review creates waves in Australia

Clancy Yeates in the Sydney Morning Herald: Insurance companies face an overhaul in how they handle flood risk, after an independent review considered sweeping changes designed to lift insurance cover against natural disasters. The Assistant Treasurer, Bill Shorten, was due to receive a final report on Friday from the National Disaster Insurance Review, chaired by the former banking regulator John Trowbridge.

Industry sources said the review appeared to be leaning towards a proposal to create a new pool of funds that would be used to subsidise flood insurance in high-risk areas. It is unclear how such a pool would be funded, but some sources were concerned it could be paid for through a levy on insurance policies. The review has also considered other options to lift flood cover, which was included in about half of all home insurance policies last year. In a discussion paper, Mr Trowbridge raised the option of making flood cover an automatic part of policies, as storm cover is today.

Insurance companies are keenly awaiting the recommendations, but these are unlikely to be made public until Mr Shorten unveils the government's response later this year. As the review drew to a close in recent weeks, firms including the country's biggest general insurer, Suncorp, have railed against the prospect of further government intervention in the push to lift flood cover.

Insurers say creating an additional insurance pool for flood cover would push up costs for all consumers and distort the market. Because government revenue is under pressure from Canberra's pledge to deliver a budget surplus in 2012-13, industry sources said an insurance pool would probably be funded by a new levy.

Critics say this would mean policyholders in low-risk areas would be subsidising homes at high risk of flooding, eroding the incentive for home owners to protect themselves against flood risk....

Thomson River in flood at Jundah, Queensland, 1950.

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