1. AIDA PRESIDENTIAL COUNCIL MEETING ISTANBUL 2 ND – 5 TH MAY 2012 MAY 4 TH CLIMATE CHANGE & INSURANCE WORKING PARTY IMPLICATIONS OF THE PUBLISHED REPORTS INTO THE 2011 QUEENSLAND FLOODS AND THE AUSTRALIAN FEDERAL GOVERNMENT ENQUIRY – NATURAL DISASTER INSURANCE REVIEW Chris Rodd Melbourne, Australia Monash University and CGU Insurance

2. 2 Queensland Floods 21/12/2010 – 14/01/2011 Queensland – Brisbane and suburbs,- approximately 6500 properties affected- Toowoomba and Lockyer Valley inundated 22 drowned Insurance Claims – 52,000 Insurance losses (current figures) $2.4 billion Uninsured losses (yet to be determined) $10 billion Massive infrastructure damage to roads, bridges, rail, drainage systems – most of which uninsured. Causes – massive rainfall in critical catchments area Town of Grantham swept away by flood water Flooding exacerbated by extensive releases of water from major dam – Wivenhoe Dam

3. 3 Extensive flooding of the CBD of Queensland's largest city, Brisbane Wivenhoe dam constructed to supply water to Brisbane. Rainfall so intense that water had to be released from the dam into the Brisbane River increasing the intensity of flooding Royal Commission convened to examine causes of the flood and its consequences. Massive uninsured losses due to flood exclusions in many policies of insurance. Flood cover for approximately 50% of properties Queensland Floods cont’d

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5. 5 Queensland Floods – Commission of Enquiry Interim Report handed down August 2 nd 2011 Contained 170 recommendations about public safety & preparedness relating to flood risk, flood risk warnings, management of releases from Wivenhoe Dam & future dam management. Recommendations concerning multi agency involvement in flood risk & flood mitigation strategies. Recommendations on land use restrictions, government buy backs of property in high flood risk regions

6. 6 Queensland Floods – Commission of Enquiry Cont. State Government agreement to implement all 170 of the Commissions recommendations contained in the interim report, including: - extensive development of detailed flood mapping in affected areas - mapping historical flood events including non urban areas - multi agency involvement including local government - extensive flood study of the entire Brisbane River Catchment - Obligation on Councils (local Government) to maintain up to date flood information.

7. 7 SECOND PART OF COMMISSION OF ENQUIRY INSURANCE ASPECTS OF THE EVENT & REINVESTIGATION OF WATER RELEASES FROM WIVENHOE

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9. 9 Enquiry involved further hearings from September 2011 to February 2012 Recommendations included - keeping insureds informed of the progress of their claims - maintaining accurate & complete records of conversations with claimants - providing information / documentation confirming basis of any claims denial. - to inform policy holders of a right to review a decision to refuse access to information - General Insurance Code of Practice issues were raised

10. 10 Management of Wivenhoe and Somerset Dam Releases Further hearing considered evidence as to the manner in which the staged release of waters from Wivenhoe & Somerset Dams -Clear evidence that water released from Wivenhoe impacted the level of flooding from the Brisbane River -Less clear the level of flooding that would have occurred had the timing of water releases altered to a more systematic & earlier release of water -Potential liability for the Queensland Government and Water Management Authority in respect of damages arising from the timing & methodology of water releases from Wivenhoe and Somerset. -Class Actions contemplated with litigation funders stepping up to potentially fund the litigation. -Significant issue yet to be resolved is establishing proof of losses arising from the alleged mismanagement of Wivenhoe. -To what extent would the losses have occurred regardless of depth of inundation. -Clearly issues of “causation” yet to be determined.

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12. 12 Management of Wivenhoe Dam Releases cont. -Clear that in order to protect the integrity of the dam wall, water had to be released -Three Senior Flood engineers with responsibility for the dam management are facing potential criminal charges in respect of evidence they gave at the initial enquiry earlier in 2011 -Notable that of the few recommendations made concerning the conduct of insurers, all have been embraced by changes already agreed to by insurers in relation to the General Insurance Industry Code of Practice.

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14. 14 Federal Government Enquiry – Natural Disaster Insurance Review Inquiry into Flood & Related matters - Review undertaken in 2011 at the request of the Australian Federal Government and Chaired by John Troubridge - Submissions made by consumer groups & advocates, insurers independently and insurers as a group through the ICA (Insurance Council of Australia) over 100 written submissions - Federal Government prepared a consultation paper titled ‘Reforming Flood Insurance’ – November 2011

15. 15 The Terms of Reference for the NDIR notes that the Australian Federal Government seeks to ensure that 1. Individuals & communities affected by floods & other natural disasters are able to recover & rebuild as quickly as possible 2. People are able to choose where they live in an informed way 3. Individuals & communities at risk of future flooding & other extreme weather events are aware of the risk & can obtain insurance & benefit from appropriate mitigation strategies The Terms of Reference also gave the committee the opportunity to independently review issues relating to insurance including the possibility to subsidising insurance in high risk areas. Federal Government Enquiry – Natural Disaster Insurance Review cont.

16. 16 Federal Government Enquiry – Natural Disaster Insurance Review cont. The issues paper released in June 2011 canvassed two alternative Models of flood insurance 1. Automatic flood cover for home insurance 2. An opt out approach for home owners The report released in September 2011 made 45 recommendations with “pivotal recommendations” 1. That an agency sponsored by the Commonwealth Government be created to manage the natural coordination of flood risk management & to operate a system of premium discounts and a flood risk reinsurance facility, supported by a funding guarantee from the Commonwealth 2. That all home insurance, home contents and home unit insurance policies include flood cover “the covering of normally dry land by water that has escaped or been released from the normal confines of: 1. Any lake, or any river, creek or other natural watercourse, whether or not altered or modified; or 2. Any reservoir, canal or dam”

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18. 18 Federal Government Enquiry – Natural Disaster Insurance Review cont. 3. That a system of premium discounts be introduced in order that most purchases of home insurance, home contents & home with insurance policies in areas subject to flood risk be eligible for discounts against the full cost of flood insurance 4. The Commonwealth Government guarantee the payment of claims by ensuring that whenever a funding shortfall occurs in the reinsurance facility the Commonwealth would meet the short fall.

19. 19 Federal Government Enquiry – Natural Disaster Insurance Review cont. Other recommendations include 1. All insurers offer flood cover for small business insurance on an opt out basis 2. Investigation of the government agency subsidy for premiums in high cyclone risk areas 3. By 2014 insurers offer full replacement cover in the event of a total loss 4. Amendments to the industry Code of Practice to provide for a maximum of four months to determine a claim subject to exceptional circumstances 5. a Key Fact Statement on all domestic insurance policies outlining the key elements of cover 6. Properties without a flood risk should not pay a flood premium & that no cross subsidisation occur

20. 20 Federal Government Enquiry – Natural Disaster Insurance Review cont. 7. a system of premium discount be considered with a link to appropriate mitigation strategies 8. to facilitate flood risk information being made publicly available, governments should provide indemnities to the providers of flood information if it proves inaccurate 9. Establishment of a national agency to undertake coordination of flood risk management & to operate the system of premium discounts & the flood risk reinsurance facility 10. Increase access to insurance through alternative payment options 11. Lending instructions remind mortgagors annually of their obligation to insure

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22. 22 Federal Government Enquiry – Natural Disaster Insurance Review cont. 12. Introduction of a standard definition of flood 13. Unfair contract terms by applied to general insurance 14. Amend the industry Code of Practice to ensure greater independence of IDR departments 15. ASIC conduct a review of the Industry Code of Practice every three years

23. 23 Industry Response to NIDR Recommendations 1. Flood insurance should not be compulsory – only 7% of residential property in Australia is exposed to repetitive flooding 2. Insurers have accepted 85-92% of claims lodged during the Queensland & Victoria Floods 3. Flood insurance now readily available for every property in Australia since 2006. 60% of policies elected by consumers has flood cover – expected to rise to 84% within 12 months 4. Mandated cover unfair for properties with no flood risk 5. A Government flood pool will raise the cost of living 6. Property owners who face high flood risk due to lack of government flood mitigation & land use planning decisions should receive direct premium subsidies from government

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25. 25 Industry Response to NIDR Recommendations 7. Map mitigate & manage the risk to reduce community exposure 8. Industry will improve community understanding of flood options through the adoption of a standard definition of flood 9. insurers will provide a Key Facts Statement with all home contents policies sold 10. Industry to provide a public portal to enable consumers to evaluate flood risk to their property 11. Industry will provide governments with a geo-coded database of known flood prone properties across Australia 12. Will act as agents of the government for government funded premium subsidies 13. Will provide public access to information on flood mitigation risk

26. 26 Industry Response to NIDR Recommendations 13. Will provide public access to information on flood mitigation 14. Amend the General Insurance Code of Practice to address key issues outlined in the NIDR recommendation* * key changes already agreed to

27. 27 Federal Government review concerning the cost and availability of Strata Insurance (NDIR) - Review focussed only on risks located in Far North Queensland - Premiums related to cyclone and storm risk - Examined significant premium increases in affected areas and the limited availability of insurance - Few insurers prepared to write cover in the affected areas

28. 28 Key Recommendations 1. Work with Queensland Government to “initiate a moratorium” on stamp duties paid on strata insurance north of the Tropic of Capricorn. 2. Conduct a review or strata title laws and create flexibility in insurance options with increases disclosure of commissions and fees 3. Investigate whether there was improper or anti comparative behaviour in the negotiation of strata insurance via unit managers and insurance brokers 4. Carry out further investigation for the reasons for the lack of competition in the strata title insurance industry in North Queensland 5. Investigate the risk assessment methods adopted by insurance companies to price the risk

29. 29 Summary 1. Flood cover is widely available but no consistent government action taken to make insurance more affordable by removing the taxes on insurance (Goods & Services Tax, Fire Services Levy & Stamp Duty) 2. No consistent approach by local Government State or Federal Governments to flood mapping 3. Flood Risk is not widespread – Only 7% of residential properties exposed 4. Tighter controls on land use in flood prone areas 5. Develop comprehensive consistent & sound flood mitigation strategies 6. Government buy back of properties in high flood risk areas

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31. 31 Summary cont. 7. Where building in flood plains is unavoidable build in a flood compatible way with appropriate materials 8. General Insurance Code of Practice changes already agreed to 9. Many insurers already adopted a standard definition of flood which in essence will cover all inundation by water escaping a “water course” as defined. The common law position re “causation” remains unaffected. 10. The issue remains whether Governments, local, state & federal will adhere to their part of the bargain which largely involves development restrictions & flood mitigation strategies 11. with the current delicate political balance Australia the Federal Government is unlikely to achieve the objective of compulsory flood cover

32. 32 Suggested wording for standard definition of “Flood” “the covering of normally dry land by water that has escaped or been released from the normal confines of: 1. Any lake, or any river, creek or other natural watercourse, whether or not altered or modified; or 2. Any reservoir, canal or dam”