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Nearly five months have passed since South East Queensland and New South Wales were both hit by devastating storms and rain. The most recent figures from the Insurance Council of Australia (ICA) reveal the associated losses have exceeded $5.1bn, making it the second costliest weather event in Australian history. In response to the sheer scale of this event, insurers are revisiting their stance on both storms and floods, a move which is set to impact limits, pricing, and the availability of cover.
Storm coverage is widely available and is considered a standard insurance cover. A Storm is typically defined as an atmospheric disturbance often accompanied by strong winds, rain, lightning, hail, snow, or dust. Apart from instances such as a Named Cyclone, policies rarely have limits or sub-limits for a Storm. The opposite is true when it comes to a Flood. Flood cover is often excluded or if it is available, policyholders must ‘opt-in’, pay the additional premium, and their policy will include sub-limits. So how do insurers determine what a storm or flood event is, particularly where it is not immediately clear, and what does this mean for your insurance policy?
Most policies have specific definitions of Flood events, which mainly describe a Flood as water escaping the confines of a natural or man-made watercourse onto normally dry land. The complexity arises when the water itself has not broken the banks of a river, but significant rainfall (from a storm), any pooling of water, and/or inundation of water into properties causes damage. This can include entering/escapement through drainage systems.
To manage their exposure to widespread weather events such as this, many underwriters have amended their flood definitions to include Pluvial Flood. Whilst each insurers’ definition differs, the majority now extend ‘flood’ to include the accumulation of surface water from the release of drainage systems (normally engineered) or through rain precipitation. This means that policies are generally more restrictive because surface water will now be classified as a ‘flood’.
For policies not carrying the Pluvial Flood extension, insurers will be issuing renewal terms with this now included. Problems arise when buildings are located in Pluvial Flood zones as this will invariably result in Flood cover being used and limits being quickly exhausted.
Until 2022, the largest recent flood and storm event was the 2011 Brisbane Floods. Significant areas of the city were inundated with water, covering roads and underground car parks. The water did not breach the bank of the Brisbane River like a traditional flood. Instead, the water made its way through drainage systems, colliding with rainwater and gushing through the stormwater drains. This combination caused a backflow of the drainage system and the water escaped from stormwater drains. Most insurers classified this as a Flood event, which left thousands of policyholders either underinsured or without a viable insurance claim.
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Many outraged brokers and policyholders argued the cause of the devastation was surface run-off from rain (which had been insured under most policies) and therefore the losses should have been covered.
The issue here is what insurers call proximate cause. That is, when determining the cause of a loss, insurers look for the most direct line between cause and effect. Where there are a few factors at play, they apply the “but for” principle. Insurers determined that the stormwater would not have flowed back into the CBD “but for” the rising river, which escaped the river area and flowed back up the drains. Insurers reasoned that the amount of surface run-off would have been handled by the drainage system if it had not been met with rising backflow from the river.
If we see a repeat of this event, the tightening of coverage by insurers would make pursuing this argument significantly more challenging for claimants.
Please contact your broker to understand if you have flood cover in place or to clarify the level of flood cover you may have. To purchase or adjust your level of flood cover, or if you have sustained a loss and want to submit a claim, please reach out to your broker.
Head of Placement
National Head of Corporate Insurance & Risk Solutions
