Flood insurance
Understanding flood insurance
Water, whether caused by a flooding river, overland flow, burst water pipe, or storm, can cause extensive damage to your home, contents and other assets.
It’s important to understand the different types of floods and other water-related events and how they may be covered under your insurance policies.
Flood insurance is often built into a range of insurance policies, including home and contents, strata title, motor vehicle and business insurance policies.
The risk of a flood occurring is reflected in the cost of the premium – property owners with a high risk of flood will pay a higher premium than other property owners.
Insurers treat flood in different ways in their policies:
- Many insurers include flood cover as a compulsory part of taking out a household policy
- Some insurers include flood as a standard inclusion, but allow the policyholder to remove it– this is known as opt-out flood cover
- Some insurers exclude flood as a standard inclusion, but allow the policyholder to add cover - this is known as an optional cover
- Some insurers will cover flood in policies only up to very low defined values – for instance, damage of $15,000 or less
- Some insurers will not cover flood under any circumstances.
Insurance and the definition of flood
Australian regulations include a standard definition of flood, which was introduced in June 2012. It applies to home and contents, small business and domestic strata-title policies.
The standard definition of flood in Australia is: The covering of normally dry land by water that has escaped or been released from the normal confines of:
- any lake, any river, creek or other natural watercourse, whether or not altered or modified; or
- any reservoir, canal, or dam.
Even if your policy excludes flood damage, your policy may still cover you for events such as storm damage or rainwater damage. Storm or rainwater cover in your insurance policy may cover the situation where your house becomes inundated by rainwater that has fallen naturally from the sky. Though most insurers regard rainwater runoff as part of storm cover, some insurers won’t cover rainwater runoff or storm surge when the customer chooses not to take flood cover. These options are explained in the Product Disclosure Statement (PDS) for your policy. Check your policy wording and talk to your insurer if you do not understand what you are covered for. Other forms of insurance may have different ways of describing flood risks.
Does your insurance policy cover floods?
When choosing or renewing your policy, make sure you understand your flood risk.
Check your policy wording carefully before buying your policy and make sure you understand whether your policy includes flood damage and what type of flood damage is included. If you are not sure, speak to your insurer.
If you are at risk of flood damage, carefully review the terms and conditions of your cover (in particular, your home and contents insurance policies) by reading your Policy Disclosure Statement (PDS). Restrictions on what your policy will and won’t cover are usually listed as exclusions.
The cost of cover is typically proportional to the risk of flooding in your location and the value of the assets you seek to protect. If in doubt, contact your insurer to clarify the extent of cover held and your insurance needs.
Though most insurers regard rainwater runoff as part of storm cover, some insurers won’t cover rainwater runoff or storm surge when the customer chooses not to take flood cover. These options are explained in the Product Disclosure Statement (PDS) for your policy.
Insurance and flood risk
About 80 per cent of insurance losses from floods occur in areas that have flooded in the past.
Governments are responsible for assessing and mapping the flood risk to communities. They use this for infrastructure and town planning, and for working out how they can lower the risk of flood for existing communities.
Flood maps can be influenced by the number of different factors including building development, road works, new agricultural growth, changes to river and creek catchments, as well as changes to drainage and sewer arrangements for your area.
Most jurisdictions are working hard to improve the accuracy and availability of their flood information.
Contact your local council for information about flood mapping in your area.
How do insurers determine the flood risk to my property?
In partnership with state and territory governments, the general insurance industry has developed and licensed the National Flood Information Database (NFID) for use by insurers in determining the flood risk to individual properties.
NFID is an address database containing 11.3 million property addresses, overlayed with the known flood risk according to government flood mapping. Commercial licensing arrangements between many governments and the specialist flood risk experts who prepare the flood maps means it is not a public database.
Most insurers use NFID to determine the flood risk to individual properties, and calculate the premium based on this risk and other criteria including building type, location and claims history.
However, it is up to individual insurers to decide what criteria they use to determine flood risk. They may examine information from many sources to identify properties that are prone to flooding. These may include local government flood mapping, historical flood information, terrain data and insurance claims information.
Insurers assess how often a property is expected to flood, how severe the flooding may be, and how deep the flood can get. It’s important to understand that insurers can’t reduce the physical impact of a flood.
Insurance, flash flooding, stormwater, rainfall run-off
During flash flooding, floodwater is produced by high-intensity, short-duration storms that produce localised flood conditions that might affect your house if you live on sloped land. Most policies cover this flood risk, but check your policy carefully if you have a particular risk for this kind of damage, for example if your house is at the bottom of a slope.
Insurance and actions of the sea, sea level rises, storm surges
These all describe inundation caused by the movement of seawater. Coastal properties can often be very exposed to this type of risk or associated damage (such as erosion). If you own a coastal property, it is important to understand exactly what damage is covered and not covered in your policy. Most insurance policies do not cover actions of the sea. Insurers do not cover the future impact of climate change.
Making a flood insurance claim
If your home or belongings have been damaged during a flood you should contact your insurance broker or company to assess your claim as soon as you can.
It is recommended that you:
- contact your insurer before authorising major repairs
- take photographs of damaged goods for insurance assessment purposes, dispose of any water and mud damaged possessions that may pose an immediate health hazard
- keep a detailed list of any items and photographs that have been disposed or removed that you want to make an insurance claim for.
If you have questions about your insurance policy or claim, speak to your insurer first. You can also phone the Insurance Council of Australia's hotline on 1800 734 621 (from 8.30am to 5pm, Monday to Friday) for more information, as well as read their tips to assist during flood recovery (PDF).
Making a flood insurance complaint
If you’re unhappy with the processing or outcome of your insurance claim you should make a formal complaint to your insurer. If you’re unhappy with the outcome of your complaint you can lodge a dispute with the Australian Financial Complaints Authority (AFCA). The ACFA will offer free dispute resolution services. If both parties can’t come to an agreement through this process they may then investigate the complaint and make a decision.
Flood and financial help
If you are not insured, underinsured, or have no specific insurance coverage for this type of event, you may be eligible for a grant to help you repair damage caused by the disaster.
More information
For more advice about flood insurance visit the Insurance Council of Australia website.