Flood claims: who is really to blame?
Flood claims: who is really to blame? | Insurance Business Australia
Catastrophe & Flood
Flood claims: who is really to blame?
What “silly things” is this Allianz MD talking about?
Catastrophe & Flood
By
Daniel Wood
“If there was one message I could get across to the committee from our perspective,” said Allianz Australia’s Richard Feledy, “stop doing the silly things which make the problem bigger.”
The managing director was answering questions at the government’s inquiry into the response from insurers to the 2022 floods. He was referring to Australia’s ongoing issue with property developments on alluvial floodplains in areas of high flood risk.
Many industry stakeholders and their customers would like to see significant changes to these planning and development rules – and not just to stop houses being built in risky locations.
Some have reached out to Insurance Business.
“Everyone points a finger at insurers but no! 80% of the blame is with local council,” said one woman to IB. Her home was severely damaged in a recent flood and, after many months, she won an AFCA ruling against the insurer. IB is keeping her identity secret as a courtesy.
The woman said a major cause of the water damage to her home was likely the local council’s refusal, despite significant new property developments, to update the area’s sewerage system.
Flood damage from poor development rules
Testimony like this, and evidence from the 2022 floods, strongly indicates that claims issues and flood damage are partly a result of building in flood prone areas, along with insufficient infrastructure like sewerage and drainage systems.
“Development in flood prone areas significantly increases the risks to new and existing residents living in those areas and their property,” said Julian Peake (pictured above).
Peake is special counsel with insurance-focused national law firm, Gilchrist Connell. His work involves acting for insurers on complex construction and infrastructure disputes including road, rail, tunnelling projects and commercial and residential building developments. Peake’s duties have included claims arising from issues of flooding and subsidence on large scale residential land development.
The Sydney-based lawyer said the NSW government’s recent decision to stop development in flood prone areas, including in the Hawkesbury-Nepean Valley region in NSW, attempts to respond to this risk.
“However, some, including local councils, view the State Government’s decision as a ‘ham fisted’ approach to the issue which has unnecessarily stifled development in the area, and its associated economic benefits,” said Peake.
He said “ultimately, a balance needs to be struck” between the push for more development and “the social and insurance implications arising from building on flood prone land.”
Claims and development rules: is there a strong link?
IB asked Peake how often, in his experience, are developments in flood prone areas or poor infrastructure like sewerage works a big reason for the flood damage that property owners expect the insurer to pay out on?
“Poor stormwater, sewerage and other infrastructure are certainly factors that increase flood damage by prolonging or otherwise increasing the level of a flood,” he said. “However, planning issues and the development of properties in flood prone areas is a primary factor that leads to the flooding incident and flood damage in the first place.”
He said building in these areas, together with the failure of flood mitigation measures, can also be a factor.
“This was seen in the 2022 NSW flood events, which were exacerbated by the failure of the levee protecting the Lismore CBD and the release of 230,000 megalitres of water a day from the Wyangala Dam, leading to significant flooding along the Lachlan River in Central West NSW,” said Peake.
Another issue, he said, can be how flood risk for properties is termed in terms of “a one in hundred-year event.”
Reports show that, despite this designation, some of these properties have experienced repeated flooding in recent years.
“Many do not appreciate the real risk of and potential damage associated with a flood event until it occurs,” said Peake.
Is the government turning back the tide?
He said the recent response of the government to planning and infrastructure issues around flood mitigation “is sensible.”
“The way forward requires a sensible and balanced approach,” said Peake. “Development controls in high-risk areas are necessary and will certainly assist in easing the social, insurance and economic implications arising from flood events.”
However, he said these controls “should be carefully considered” to achieve a balance between mitigating flood risk and “the benefits of development and the insurability of properties in those areas.”
ICA’s repeated calls for government action
For some years, the Insurance Council of Australia (ICA) has called on governments to implement better land use and building development rules.
“This report again underscores the need to make better decisions in land use planning, building standards and government investment in mitigation works if we are going to end this cycle of flood impacts on homes and businesses in Australia,” said ICA CEO Andrew Hall.
Are you an insurance broker? How do you explain the insurance related issues around flood claims? Please tell us below.
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