Cyclone insurance under cloud as some insurers exclude storm surge from flood cover

Is your home covered for storm surge from Cyclone Alfred? Many homes aren’t insured for flood damage – and even those with coverage might find damage costs excluded.

A house crushed by a tree at Currumbin Valley in the build-up to Cyclone Alfred. Picture: Qld Ambulance Service, Facebook.

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Alarmingly high numbers of homes are unlikely to be insured for Cyclone Alfred’s destruction, due to unaffordable premiums or loopholes that exclude storm and tidal surge from flood cover.

The Insurance Council of Australia said 77 per cent of Australian homes at the highest risk of flooding are not insured for flood, and that not all flood cover includes damage from storm surge.

The Insurance Council of Australia said 77 per cent of homes at the highest risk of flooding were not insured for flood, and that not all flood cover included damage from storm surge.

“Most standard policies in Alfred’s path will cover for storm/cyclone damage,’’ a spokeswoman said on Friday.

“While all insurers offer flood cover as a product generally, some customers may have opted out of flood cover, generally because their flood risk is high which has led to a higher premium.

“When it comes to storm surge, this varies between insurers.’’

As Australia’s financial services watchdog warned insurers to show “empathy’’ to customers, insurance comparison company Canstar revealed that only 20 per cent of the 71 home insurance policies on its database, from 51 different providers, include cover for storm surges, defined as a rise in sea level or a powerful rush of water onshore due to a storm.

A spokeswoman said no policies on Canstar’s database include cover for tidal surges or king tides, defined as a “considerable rise in seawater’’.

“Other exclusions could include loss or damage from rainwater entering a property through an opening not caused by the storm, such as an open window or gap in the roof from previous damage or deterioration,’’ she said.

”Policies may also exclude damage to fixtures that weren’t in good condition before the storm, such as broken or rotting fence.’’

Businesses in Brisbane are sandbagging ahead of predicted flooding from Cyclone Alfred. Picture: Albert Perez/Getty Images

The Canstar spokeswoman said that it may be common for home insurance policies to cover storm-related damage caused by strong winds, lightning strikes, power surges, fallen trees, debris, and rainwater-related issues such as gutter overflow and surface run-off.

The alarm over insurance comes as the federal, NSW and Queensland governments handed local councils $30m in emergency funding upfront to spend on essential clean-up and restoration works in the cyclone’s wake.

Councils can use the cash to remove waste and debris from streets and properties, and to repair public buildings or infrastructure.

Prime Minister Anthony Albanese said that “early focus on clean-up is the first step to returning life to an even keel’’.

The Insurance Council spokeswoman said 1.36m Australian properties face some risk of flooding, including 91,000 Queensland homes with at least a two per cent risk of flooding each year.

“Of the estimated 225,000 homes in the highest flood risk locations across the country, it’s estimated that only around 23 per cent have flood cover, compared to an estimated 60 per cent nationwide,’’ she said.

Census data shows 4.4 million people live in the 1.8 million homes in Cyclone Alfred’s danger zone, stretching from the Sunshine Coast through Brisbane and the Gold Coast, the Richmond-Tweed area and south to Grafton.

Based on the Insurance Council estimate that 40 per cent of all Australian homes are not insured for flooding, this would leave at least 700,000 homes exposed to uninsured damage as the cyclone threatens to bucket as much as 800mm of rain over southeast Queensland and northern NSW over coming days.

The Insurance Council spokeswoman disputed the figure, saying the data was based on a national average – but could not provide any estimate of the number of uninsured homes in Cyclone Alfred’s path.

The Australian Consumer Association’s CHOICE insurance spokesman Jodi Bird said some cheaper insurance companies excluded storm surge from flood coverage.

“Our main concern is storm surge as it’s a fairly common exclusion,’’ he said.

“We have a standard definition of flood brought in after the 2011 Brisbane floods, but that definitely doesn’t include things like actions of the sea or storm surge.

“When you get a storm coming in with an extreme high tide it can cause a storm surge.

“You might think your house is flooded and therefore covered, but it depends what the cause of the flood was.

“If you get creeks flooding … it could potentially be affected by a surge of water from the sea.’’

Mr Bird said some insurers had made coverage so expensive – charging up to $30,000 per home – that homeowners could not afford it.

“People who are in flood areas likely don’t have flood cover because it is not available or it is too expensive,’’ he said.

“The risk rating for Lismore has gone through the roof after the last floods and insurers have either pulled out of the market or are quoting extreme premiums of more than $10,000 that people can’t afford.’’

Mr Bird said governments must step in to stop developers building on flood-prone land.

Onlookers watch cyclonic waves at Snapper Rocks. Picture: Nigel Hallett

A spokesman for insurance giant Suncorp said that all its policies have cyclone and storm surge cover as standard.

“Our Home and Contents policies come with cover for cyclone, flood, storm and storm surge as a result of the cyclone, as standard across all our brands, including Suncorp Insurance, AAMI, GIO, Apia and Shannons,’’ he said.

“This includes features such as repairing your damaged home, temporary accommodation if your home is damaged and cannot be lived in, removal of debris and replacing or repairing damaged contents.“

Australian Securities and Investments Commission Commissioner Alan Kirkland said insurers are “required by law to handle claims efficiently, honestly and fairly’’.

“This is more pertinent than ever as Tropical Cyclone Alfred approaches … (it) will likely affect a large number of Australians who will need their insurers to listen and respond with empathy when they seek help’’.

“People submitting claims after extreme weather events have a right to expect that their insurers will communicate clearly, keep them up to date with the progress of their claims and respond appropriately to complaints.

“Insurers need to understand that severe events will unfortunately happen more often, so they need to have the resources and systems in place to effectively assist their customers.’’

The Australian Competition and Consumer Commission said many consumers did not read insurers’ full product disclosure statements.

A spokesperson said the ACCC’s northern Australia insurance inquiry in 2020 had found that “PDS can be long and time-consuming to read, can have varying inclusions and exclusions … many consumers do not read them.’’