Ex-insurance boss warns of backlash from flood claim rejections

FORMER insurance company director warns insurers to suffer if they baulk over a "technicality" in making payouts for flood damage.

WARNING: Former NRMA Insurance director Richard Talbot. Picture: Tracee Lea

A FORMER insurance company director has warned insurers will suffer if they baulk over a "technicality" in making payouts for flood damage.

"You can destroy your marketplace credibility if you are seen to not be acting in the best interests of the community," said Richard Talbot, a former director of NRMA Insurance when the organisation was customer-owned.

He said insurers should be flexible in offering payouts to flood victims.

His comments follow concern by the Federal Government, which has flagged possible reforms, highlighting "substantive issues" in terms of the definition of flood.

Some insurance policies do not cover for flood damage from slow-rising rivers, but protect for a sudden storm burst.

Consumer advocates regard some policies as confusing.

Insurers face their own dilemma. Industry insiders say insurers' own "reinsurance" protection for big events possibly would not cover special payouts to customers, meaning a massive financial shortfall in large disasters.

But Mr Talbot countered insurers could tell reinsurers to be flexible if they wanted to keep a business relationship.

"All these things are up for negotiation," he said.

Mr Talbot headed a controversial drive for NRMA Insurance to make special ex-gratia payouts to dozens of victims of a Wollongong storm in 1998.

An argument had emerged because NRMA executives then were "denying claims by technically arguing damage was caused by flood and not by storm", he said.

Mr Talbot said the special Wollongong payout benefited NRMA in the long term, because more customers signed up.

Kevin Bowman, who specialises in insurance at Curtin University, said people sometimes did not read policies and assumed floods were included.

Suncorp offers automatic flood cover. Its AAMI subsidiary does not, and a spokesman said AAMI would "consider each claim on an individual basis".

RACQ Insurance offers the option of cover for river floods, and warned this week it would "not be able to pay flood claims" for those who had not taken out the extra option.

NRMA, now a brand of stockmarket-listed IAG, does not cover for slow river floods in Queensland and said claims would be considered individually and "paid in accordance" with each policy.

Suncorp shares fell 2.4 per cent to $8.20 yesterday. The stock has lost 69c since December 14, wiping almost $900 million from its market capitalisation.