2. The 2022 major floods

What were the 2022 major floods?

2.1The 2022 major floods were a series of devastating flood events which occurred across south-east Queensland, New South Wales (NSW), Victoria, and Tasmania. Hundreds of postcodes across the four states were impacted, with some of the hardest hit areas in the Northern Rivers region, Hawkesbury-Nepean region, Central West NSW, Northern Victoria, and a number of metropolitan locations in Brisbane, Sydney and Melbourne.[1]

2.2The floods were historically significant in scale and severity, resulting from a confluence of weather events that caused persistent and prolonged rainfall.[2] These events included back-to-back La Nina in the Pacific Ocean, a positive South Annular Mode (SAM), and a negative Indian Ocean Dipole – all of which generally result in higher rainfall, with a positive SAM especially bringing higher rainfall to eastern Australia.[3]

2.3November 2021 was Australia’s wettest month on record, limiting the capacity of soil and water catchments to hold further moisture.[4] Extreme rainfall ensued in 2022 in the same locations over several days and weeks, filling already swelled water catchments and causing significant flooding.[5] Several of the major flood events involved record-breaking rainfalls and river peaks significantly higher than previous records.[6]

2.4The size and geographical spread of the floods ensured many major towns and regional areas were inundated,[7] with the damage far exceeding catastrophe plans that insurers, communities and local governments had in place.[8] This resulted in widespread property loss, damage to public infrastructure and harmful disruption to peoples’ lives. Such impacts are covered in greater detail later in this chapter, as well as throughout this report.

ICA declared events

2.5The Insurance Council of Australia (ICA) declares ‘insurance events’ when an event is expected to have a material impact on normal operations for policyholders and insurers.[9] The ICA categorises events (in order of escalation) as a Significant Event, Catastrophe, or Extraordinary Catastrophe.[10]Table 2.1 shows the declarations made by the ICA for each of the 2022 major floods:[11]

Source: Insurance Council of Australia, Submission 11, p. [13].

2.6The benefit of an ICA declaration is that it signals to the insurance industry how it should prioritise its response to support policyholders impacted by the disaster. A declaration is also intended to trigger stakeholder engagement processes including community townhalls and formal data collection to better assess the impact of the insurance event.[12]

Monetary costs of the major floods

Insured costs

2.7The major flood events saw over 300,000 insurance claims lodged, totalling over $7.7 billion of incurred costs.[13]$6.3 billion was incurred by the south-east Queensland and northern NSW floods (CAT 221) alone.[14]According to the ICA, CAT 221 was the costliest insurance event in Australian history (in non-normalised cost when compared to historical events) and the second largest in the world in 2022.[15]

2.8A breakdown of the claims lodged and the associated claim costs as of November 2023 for each of the major flood events is provided in Table 2.2.[16] A claim is considered ‘closed’ when all construction work has been completed and all payments to the policyholder have been made.[17]

Source: Data provided by the Insurance Council of Australia.

Other costs

2.9The 2022 floods cost the economy an estimated $5 billion from lost economic activity.[18] Between February and November 2022, the Australian Government provided $3.47 billion in relief measures to individuals through the Disaster Recovery Allowance (DRA) and the Australian Government Disaster Recovery Payment (AGDRP).[19]

2.10The Australian Government also provided financial assistance to the states and territories through the Disaster Recovery Funding Arrangement (DRFA),[20] with $7.45 billion shared 50:50 between the Australian and state and territory governments to support disaster recovery following the major floods.[21] State and territory governments were tasked with designing, coordinating and delivering relief and recovery assistance to disaster affected communities. The grants, loans and emergency payments provided by Commonwealth and state and territory governments provided critical assistance to the uninsured and underinsured, as described in Chapter 8.

2.11As consumer advocacy groups observed, uninsured individuals must rely on government assistance, charitable support or their own usually limited savings to repair or replace what they have lost.[22]Mr Andrew Hall, Chief Executive Officer of the ICA spoke to the Committee about the perils of disaster recovery for the uninsured:

Not only is the impact on that person that they lose everything; they then rely on the state to be able to come in and help them get back on their feet in whichever way they can. They never do. We've got plenty of studies that show that people, without insurance, basically never can get back to the situation they were in.[23]

2.12The Financial Legal Rights Centre, CHOICE, Consumer Action Law Centre and Westjustice highlighted the potential causes and impacts of policyholders being underinsured:

It is not unusual for people to find themselves underinsured after an event that destroys their home. This means that they are then responsible for the gap between the cost of repairing the damage and the payout they can expect from their insurer.

…

Consumers tend to let their insurance product roll over year to year without updating the sum insured amount, leaving them at risk of being underinsured when the level of risk to their property increases over time. CHOICE’s research found that 85% of people have not switched insurance companies in the past three years. Some people therefore may not have an accurate sum insured, which reflects increased building and labour costs.[24]

Impact on individuals, communities and businesses

2.13The major flood events had a devastating physical, emotional, and financial impact, placing significant strain on affected communities to recover. Although communities experienced varying degrees of flooding, damage to residential, commercial and agricultural properties was overall significant and widespread.[25] People were evacuated as water inundated homes and businesses, leaving personal belongings in ruins. In some cases, people had no or little warning of the flood, waking to find water already in their homes. Many of these people were forced to relocate onto roofs for safety until emergency services could attend.[26]

2.14Most devastating was the human toll; 32 people are believed to have died during the major flood events.[27]

2.15Communities and individuals, as well as consumer advocacy groups and local councils, spoke to the Committee extensively about the severe impacts the flood events and the ensuing insurance processes had on residents’ emotional and mental wellbeing.[28] Mitchell Shire Council, overseeing townships impacted by CAT 223 noted:

The flooding rose significantly and faster than expected, to a much higher level than predicted, with alarming and perilous changes occurring primarily throughout the night. As such, the community were caught totally off guard. We were not prepared for the speed, the height and the challenges…[29]

2.16Financial Counselling Australia, also representing various state financial counselling associations, told the Committee:

When the floods occurred, their homes, in which they had invested years of hard work and savings, were inundated. This experience was not only financially devastating but also emotionally traumatic. After making claims, these policyholders faced long, emotionally draining battles with insurers to secure fair settlements. The claims process, rather than providing the relief they so desperately needed, added layers of frustration, anxiety, and uncertainty.[30]

2.17Ipswich City Council echoed a similar sentiment:

For many residents, dealing with their insurance companies after enduring such terrible flooding was a stressful, slow and dispiriting process. At a time when people are at their most vulnerable—traumatised—they are dealing with the ins and outs of an insurance claim that adds significantly to people's stress.[31]

2.18Individuals faced significant financial loss with extensive damage to their homes; the uncertainty surrounding housing and insurance coverage caused high levels of anxiety and stress. Consumer advocacy groups and financial counselling agencies told the Committee that in the days following the floods, policyholders’ ability to make decisions, particularly life-altering decisions such as whether they would seek to rebuild or relocate, were significantly inhibited by an ongoing state of shock.[32] This ability to make informed decisions in a considered manner extended to the offers of cash settlements that often flowed from disputes with builders or on scopes of work. The decisions made during this time were not always the ones policyholders believed they would have chosen, had they had more time to consider the options before them.[33]

2.19The Local Government Area (LGA) of Brisbane suffered the greatest loss from CAT 221 at $1.38 billion, working out to be a $1,500 loss per adult resident.[34] The ICA reported that the average claim in the Brisbane LGA for CAT 221 was around $30,000.[35] The Lismore LGA suffered a $508 million loss, but with its smaller population saw a much higher loss per adult resident at almost $20,000.[36] In the Lismore LGA, claims averaged almost $80,000 for CAT 221.[37] Eugowra, impacted by SE 224, saw 80 per cent of homes damaged, with a third of the township’s population having to be airlifted off their roofs to safety.[38] This was the largest civilian helicopter rescue in Australia’s history.

2.20Further, the flooding of major river systems surrounding the Campaspe shire caused the Victorian 2022 flood event to be the most devastating in Victoria’s history;[39] 90 per cent of the Rochester township was inundated.[40] A similar story unravelled in Tasmania with the flooding of Cataract Gorge in Launceston.[41]

2.21Businesses also experienced substantial damage, such as Sunshine Sugar in the Northern Rivers which suffered a $47 million loss.[42] Crops and livestock were lost, and critical public infrastructure destroyed.[43] Local councils reported extensive damage to sports fields, community halls, car parks and schools.[44] 90 per cent of Lismore’s 1,200km road network was extensively damaged, with Lismore City Council estimating costs of $150-200 million to rebuild.[45] Road closures also had negative impacts on many small businesses.[46] A number of townships were cut off as a result of transport infrastructure damage from the floods .

2.22The loss of public spaces such as schools and sporting associations contributed to a general sense of social breakdown.[47] Lismore City Council described people feeling left behind as schools relocated and long-standing shops closed while they wait for insurance payouts or Government support to relocate:

There are still people to this day living in North and South Lismore, who are living in caravans and living underneath their houses with tarps on their walls for privacy, facing what is going to be their third winter in what many would consider substandard living conditions. Having rain fall on their tin roof is a highly traumatic experience for these people. Their kids' schools have been uprooted and moved away. Every aspect of their lives—their corner shop that was there 2½ years ago is no longer there anymore—and everything that you take for granted in your day-to-day living is no longer there.[48]

2.23Mr Stuart Locke, President of Go Seymour, an incorporated chamber of commerce, said that regional and remote communities were particularly affected by the damage to public infrastructure:

…within our little microcosm of business and community, they greatly affect each other – more so when compared to a metro setting. If we lose banks and we lose like football clubs or whatever, you might as well just write the town off. In the case of Rochester, their football club is their lifeblood.[49]

2.24The major floods also directly affected the agricultural industry, causing broader economic disruptions felt by all Australians.[50] The nationwide consumer price index (CPI) measure for fruit and vegetables grew by 5.8 per cent in the 2022 June quarter,[51] brought on by flood-induced agricultural losses, resulting in all Australian households spending more on produce.[52]

2.25Having lost their homes and personal belongings, flood affected individuals were facing severe hardship. The CAT221 event alone rendered 5,000 homes uninhabitable and 14,000 people in need of emergency accommodation, at a time when the rental property vacancy rate in Brisbane was 0.7 per cent and holiday accommodation prices were rising.[53] Many people were forced to relocate into temporary accommodation and rely on essential services for supplies. Damage to critical infrastructure meant some communities were cut off entirely from recovery support for several days or weeks, leaving residents isolated and in a state of instability for extended periods of time.[54] Some regions saw repeated flood events over 2022, eroding resilience and slowing recovery efforts and drying out processes.[55] For some residents in the Hawkesbury region, the July 2022 event was the fourth time in 18 months that the region was flooded.[56]

Policyholders’ claims experiences immediately following floods

2.26Policyholders had varied experiences following the floods. Many policyholders had difficulty contacting their insurer to submit claims, with long call wait times and a lack of reception and internet service requiring travel to make calls or lodge a claim online.[57] Others experienced difficulties as a result of loss of computers or personal files. For others, lodging their claim was a quick process and that following lodgement, insurers were quick to respond, offering immediate assistance where they could such as sourcing temporary accommodation and providing ex-gratia payments while policyholders’ waited for assessments and decisions on their claim.[58]

2.27Some policyholders the Committee heard from were satisfied with their claims experience, or otherwise agreed that the insurer had acted fairly and honestly.[59]

2.28However, there were a concerning number of cases where insurers failed policyholders. The submissions received by the Committee and the oral testimony provided at public hearings makes it clear that in a considerable number of cases, insurers’ communications, claims handling, case management and dispute resolution was unacceptable.

2.29The manner in which insurers handled some claims exacerbated many policyholders’ trauma and stress.[60] This group of policyholders faced a variety of issues when navigating the claims process including delays, claim denials based on poor quality or non-compelling expert reports, and inadequate cash settlement offers. Poor and inconsistent communication from insurers further drove policyholder distress. These issues are discussed in Chapters 4 and 5.

Claims handling and project management

2.30The Australian Securities and Investments Commission (ASIC) review and Deloitte report both pointed to under-resourcing of claims handling by some insurers. This included call centres and assessors. This was corroborated by evidence received by the Committee.

2.31There were issues in relation to the scope of policies. As identified below, this was a particular challenge for people with language issues, but there is an issue more broadly about the scope of coverage and, in particular, the scope of exclusions. This is discussed further in Chapter 4.

2.32The ASIC review and Deloitte report also identified issues with project managing building works and the engagement of third parties more generally. This included issues relating to the development of Scope of Works (SoWs) and the management of builders and tradespeople. This was corroborated by evidence received by the Committee.

2.33The ASIC review and Deloitte report also identified issues with expert reports, and in relation to temporary accommodation.

2.34For example, the Deloitte report described availability pressures for emergency accommodation during the tourist season, and this inquiry heard many heartbreaking stories of flood survivors being moved from hotel to hotel at short notice—and having their accommodation payments terminated while their homes were still uninhabitable.

Impact on vulnerable policyholders

2.35The negative impacts of the major floods and insurers’ poor claims and complaints handling was worse for vulnerable policyholders. Vulnerability can take many forms, including age, poor physical and mental health, language or literacy barriers, financial distress, and being in a remote location.[61] In the aftermath of the major floods, all impacted policyholders were arguably experiencing vulnerability. However, most insurers were identifying only 1-6 per cent of policyholders as vulnerable, who then were allocated additional support.[62] Given many of the areas seriously impacted by the major floods had older populations, low financial literacy, or were remote, this figure appeared low to the Committee, and did not align with some of the evidence received from individuals and community organisations as to the prevalence of vulnerability.

2.36Navigating the claims and complaints process consumed a significant amount of time, effort and resources, therefore being largely inaccessible for vulnerable policyholders or those with demanding family, work or caring obligations.[63] Many policyholders who spoke to the Committee at public hearings expressed concern for policyholders impacted by the major floods who would not have had the time or support network to persist with their claim or initiate a complaint.[64] One policyholder told the Committee:

It's a good thing that I'm retired because where the hell would a normal person that has children and other things happening in their lives get the time to be able to do that? I did spend every single waking hour on the phone…[65]

2.37Another policyholder told the Committee:

My partner and I were flooded in the October 2022 floods… Both of us have post-graduate education. We have relevant skills, and we've got resources and extensive networks. We still found it next to impossible to navigate the system.[66]

2.38A Financial Counsellor at Anglicare Victoria, a social advocacy organisation, told the Committee:

The demographic of the people we have seen include working young-to-middle-age mortgage holders. If the assertive, knowledgeable tech-savvy people are struggling to get fair outcomes, imagine how the vulnerable people are going.[67]

2.39Low levels of digital literacy caused some policyholders to struggle in navigating insurers’ claims processes which relied heavily on email correspondence, online forms and submission portals.[68] Some local councils and community organisations activated recovery hubs which greatly benefited policyholders with low digital literacy by providing an immediate physical presence of support and in-person guidance.[69] Internet access was also an issue in some cases, suggesting aspects of the claims process are ill-fit for the disaster context:

On the second day after the flood, someone connected a Starlink Wi-Fi at the civic centre. We stood in the foyer and tried to fill in the online insurance claim form, but soon found we needed a verification code sent to our mobile phone. We could not submit the form without it. Insurance companies should surely realise that mobile networks and internet are vulnerable during a disaster.[70]

2.40Policyholders with low financial literacy or who did not speak English as their first language were particularly vulnerable to misunderstanding the extent of their insurance coverage and being underinsured, as well as accepting inadequate cash settlement offers.[71] Ms Madeliene Serle, President of the Maribyrnong Community Recovery Association told the Committee:

I have a woman, who I've gotten to know, who has an excellent insurance policy. She has cover for her building for pretty close to half a million dollars. Her insurance company came in and looked at it - she's elderly, she's Italian, she has English as a second language and she does not use the internet—and they got her to agree to a settlement of $40,000 to fix her building.[72]

2.41Some policyholders impacted by the major flood events were completely unaware that their insurance policy did not actually cover flood.[73]One survey participant wrote:

We found the policy to be so confusing, hard to understand, and not clear in what we were covered for. We feel you need a degree to be able to understand the policy.[74]

2.42Consumer advocacy groups highlighted the need for a more tailored approach to sourcing suitable temporary accommodation for vulnerable policyholders.[75] Due to the scarcity of available accommodation in impacted towns, insurers found innovative ways to allow policyholders to stay on their properties by providing caravans.[76] This solution, whilst welcomed by many policyholders, was not suitable in all instances. As an example, Financial Counselling Australia noted that for one client, the insurer arranged a standard caravan for a policyholder with serious mobility issues who was not able to use the toilet inside.[77] Having to access the builder’s toilet in the dark, the policyholder had a damaging fall resulting in injury.[78] In some regions, community organisations stepped in to assist displaced and vulnerable residents.[79] For example, Resilient Lismore initiated the Two Rooms Project which involves the partial restoration of flood-impacted homes to allow residents to stay on their properties safely.[80]

2.43A lack of timely and empathetic communication from insurers caused further distress and frustration for affected policyholders, but especially vulnerable policyholders when their cases were not managed effectively. One particularly challenging case raised by Financial Counselling Australia described a policyholder known to the insurer to be experiencing domestic violence. The insurer did not respond to calls or emails, nor appoint a case manager, thereby furthering delays and periods of uncertainty. At one point the insurer contacted the perpetrator in error, increasing the volatility of the situation.[81]

2.44Despite insurers having measures in place to prioritise support for vulnerable customers,some vulnerable policyholders had great difficulties reaching their insurer, intensifying their vulnerability.[82] Many policyholders also noted they had to repeatedly retell their experience to different staff members at their insurance company. Legal Aid NSW observed:

…some insurers have required our clients experiencing vulnerability to speak to different representatives each time and repeat their story. This can be retraumatising…[83]

Disputes

2.45The increased volume of claims handling in turn led to a rise in disputes. There was a rise in both internal and external dispute resolution (IDR and EDR respectively). IDR relates to cases in which a policyholder disputes a process or a finding or a decision made by their insurer and raises that matter with the insurer. The insurer will then resolve that dispute according to a series of steps. While each insurer has its own IDR management process, it must comply with the General Insurance Code of Practice and certain regulatory instruments (such as Regulatory Guide 271). EDR refers to situations where IDR fails to resolve the matter and a consumer takes the matter to the Australian Financial Complaints Authority (AFCA).

2.46IDR rates rose considerably during 2022, which reflected the spike in total claims numbers. Total EDR rates also rose, but the EDR rate per thousand claims was higher for claims relating to matters other than the 2022 floods than for the events themselves. This may reflect the fact that insurers redeployed resources internally towards handing the surge of cases arising from the 2022 floods leaving less resources for other matters. While EDR success rates varied across insurers, they were generally very low in percentage terms which raised questions in relation to the fairness of IDR outcomes more broadly. More particularly, it has been suggested that many people may have simply accepted initial assessments or the outcomes of IDR when their prospects of successfully challenging those outcomes were reasonably high.

2.47The Committee received considerable evidence in relation to problems with IDR processes. Often, these problems related to delays and the quality and clarity of external expert reports. Complicated and lengthy IDR processes often compounded post-disaster challenges for policyholders, who were already in a very vulnerable situation. Many poor IDR decisions may have gone unchallenged. It has been suggested to the Committee that many people may have simply accepted initial assessments or the outcomes of IDR when their prospects of challenging those outcomes were reasonably high. This is worthy of further examination.

2.48Too many cases are progressing from insurers to AFCA, both in relation to major natural disasters and also cases relating to ‘business as usual’ claims. The surge in the number of EDR cases relating to BAU cases often arises from the redeployment of resources within insurers. While this redeployment of resources is an important aspect of coping with the surge of cases after natural disasters, handling the overall burden of IDR needs to be a part of disaster planning. While EDR success rates varied across insurers, they were generally very low in percentage terms, which raised questions in relation to the fairness of IDR outcomes more broadly. The broader increase in cases flowing to AFCA also suggests that insurers’ IDR processes need to resolve more cases speedily and satisfactorily.

2.49IDR and EDR processes are discussed in detail in Chapter 6.

Overall performance

2.50Closure rates are an imperfect measure of insurance outcomes and claims handling. Some claims that are ‘closed’ involve a resolution that the consumer found to be highly unsatisfactory. And some claims that are ‘open’ involve a substantial amount of progress and, possibly, the person or family living in their home. An ‘open’ or ‘not closed’ case may reflect a high degree of consumer satisfaction. Even allowing for that, closure rates are a reasonable proxy (and perhaps the best single simple measure) of the time it has taken to resolve the claims arising from a natural disaster.

2.51What is clear from Table 2.3 is that after all four major floods in 2022 a majority of claims were ‘closed’ after 12 months, with the proportion ranging from a high of 93.82 per cent for SE 224 to a low of 83.63 per cent for CAT 221.

Source: Data provided by the Insurance Council of Australia.

2.52While a majority of cases were closed after 12 months in all events, the proportion of ‘unclosed’ cases varied considerably, from 6.1 per cent for SE 224 to 16.4 per cent for CAT 221, almost three times as much. In part, this result for CAT 221 reflected both the large volume of claims for that event and the broader macroeconomic and workforce constraints in early 2022.

2.53Moreover, while the proportion of unclosed cases was a minority after 12 months – it still reflected a large number of cases in absolute terms. Indeed, for CAT 221, over 35,000 cases were unresolved 12 months after the event.

2.54When citing overarching statistics, it is important to remember what it can mean for an individual, a family or a small business to not have their claim resolved after 12 months. This can mean a family still living in temporary accommodation (a caravan, or an incomplete building) a year after the event - or more than 2 years in some cases the Committee heard. It can involve children struggling to attend school or attending an unfamiliar school. It can involve financial, housing and employment uncertainty which, after such a long period of time, may result in considerable mental and physical health issues. The fact that a majority of cases are resolved within a year doesn’t take away from the experiences of tens of thousands of individuals, families and businesses whose cases drag on.

Challenges and obstacles to recovery

2.55The unprecedented volume of claims arising from the major floods alone challenged insurers and placed immense pressure on insurers’ resources, from claims assessment and processing to repairs and rebuilding. This is particularly so as insurers were already under pressure, with 85,953 open claims driven by six declared insurance events in 2021.[84] This was particularly the case for CAT 221, which involved over 220,000 claims.

2.56While the aggregate number of claims across the 2022 floods was high, it is important to note that one of the core elements of insurers’ business model is to provide individuals and businesses with assistance following natural disasters. While it is impossible to know exactly when or where disasters will occur, and how severe they will be, insurers know that there will be natural disasters in the future. Three of the flood events in 2022 were well within the range of past experience over the medium term. Insurers should have plans in place to be able to cope with natural disasters arising at any time that are within the scope of what is reasonably foreseeable.

2.57In addition to high claims volumes, recovery was made more difficult with particularly challenging economic conditions that constrained insurers’ access to labour and materials and made it difficult for insurers to hire additional staff. For policyholders, this meant a lengthy and frustrating claims and rebuild process, some of which are still ongoing more than two years after the event.

2.58As briefly outlined above, data from the ICA suggests that over 40 per cent of major flood claims were closed within 6 months of lodgement, and 80 per cent within 12 months.[85] Although a high portion of claims were resolved within a year, tens of thousands of policyholders make up the 20 per cent which experienced considerable delays in claim assessments, dispute resolution processes, and repairs/rebuilds. These policyholders faced extended displacement and financial hardship, with no choice but to wait and withstand the uncertainty and stress.

Labour shortages

2.59The start of 2022 was a turning point for the global economy with the lifting of COVID-19 restrictions.[86] The Deloitte report observed that advanced economies rebounded strongly and quickly, meaning businesses suddenly needed more workers.[87] With a shrunken Australian labour force due to pandemic border closures halting both international and internal migration, the unemployment rate was historically low.[88] Recruitment was an issue for the Australian insurance industry, which had itself downsized from a workforce of 118,000 in 2019-20 to 101,000 in 2021-22.[89] All insurers faced significant difficulty recruiting staff and contractors in this tight labour market.

2.60Jobs and Skills Australia’s (JSA) 2023 analysis found national shortages in hydrogeologists, hydrologists, electricians, bricklayers, carpenters, painters, plasterers, tilers, and plumbers.[90] Further, data from JSA’s Survey of Employers who have Recently Advertised for the 2022-23 financial year showed that the number of suitable applicants per vacancy for construction occupations was well below the average.[91]

2.61With a historically low unemployment rate and an in-demand construction industry, there was limited availability of tradespeople to repair and rebuild homes damaged by the major floods. These challenges were felt more strongly in flood affected regional areas such as the Northern Rivers where tradespeople and suppliers themselves were significantly affected by the floods.[92]

2.62Although some insurers allow policyholders to opt out of flood cover, these policyholders may still be covered for other types of water inundation such as storm or rainwater runoff.[93] As several of the major floods being considered for this inquiry involved both rainwater run-off and flood water, hydrology reports were required by insurers for claims covered by run off but not flood to determine if the policyholder had appropriate coverage.[94] A limited number of qualified hydrological engineers in Australia meant surge capacity was limited, contributing to the significant delays in claims processing for some policyholders.[95]

Supply chain issues and material shortages

2.63The Deloitte report noted that although many Australian households had money to spend after two years of COVID-19 related restrictions and large-scale government support, mobility in developing countries remained strained causing supply chain issues.[96] Russia’s invasion of Ukraine in February 2022 further exacerbated global economic vulnerabilities.[97]

2.64The ICA noted there was an increasing gap between building work approved and building work completed in the 18 months before the major floods. The ICA stated that, at the start of 2022, construction trades were already in high demand and global supply-chain constraints had added to that pressure by pushing up costs and delaying job completions. This environment, and the scale of the flood events, meant very long delays in securing tradespeople to assess, repair and rebuild properties.[98]

2.65These factors converged to increase delivery times and prices for construction materials, not only impacting insurers, but also policyholders who opted for a cash settlement and had to project manage their own rebuilds or repairs.

Difficulties sourcing replacement vehicles and temporary accommodation

2.66The pandemic also impacted the market for new and used cars and rental accommodation, making it difficult for insurers to replace vehicles and source temporary accommodation for policyholders.[99] The average wait time for a new car in Australia quadrupled between January 2020 and the major flood events, reaching a high of around a five month wait in mid-2022.[100] Faced with long wait times for new vehicles, buyers turned to the used car market which caused used vehicle prices to rise to all-time highs.[101]

2.67The accommodation rental market at the time of CAT 221 in Greater Brisbane had a historically low vacancy rate of 0.7 per cent.[102] Delays in claims handling meant that some policyholders had exhausted their temporary accommodation benefits before their claim had been finalised or construction on their home completed.[103] A lack of responsive communication from their insurer caused policyholder distress as to whether their insurer would continue to cover the costs of their accommodation.[104] This issue was particularly destabilising for young families and older people.[105] The accommodation shortage, or not being covered for temporary accommodation, meant many people were still living in caravans and sheds more than two years after they were flooded.[106]

Inconsistent expert reports

2.68Expert reports are commissioned by insurers to determine the cause of damage to a property. They use these reports to determine whether the damage is covered by the policy. Some policies cover multiple forms of water damage, including flood – others exclude all water damage. Other common exclusions in home and contents policies include pre-existing damage, wear and tear damage or damage resulting from a lack of maintenance. All of these exclusions can create complex questions of causation.[107]

2.69Expert reports were identified as problematic in many submissions to the inquiry. Some individuals said that the expert reports relied on by their insurer to deny or limit claims were vague, unsubstantiated and/or inconsistent. A number of witnesses and submissions raised concerns that insurers relied on poor quality reports to deny claims on the basis of an exclusion, despite the reports lacking the necessary detail to justify such exclusions and claim denials.[108] As the cost of an independent expert assessment is usually upwards of $5,000and assessors were in high demand,[109] it was not typical for policyholders to source their own second opinion.[110] Instead, policyholders were reliant on insurers sending another assessor when they raised a dispute.

2.70Disputes over denied claims made up a sizeable proportion of internal and external disputes related to the major floods, many of which were supported by poor expert reports.[111] Disputes over denied claims also constituted a high proportion of claims not resolved after 12 months. This caused unnecessary delay and frustration for policyholders whose denied claims were overturned. Much concern has been raised for policyholders that may not have had the knowledge, energy, or time to dispute the denial of a claim based on poor, inaccurate expert reports, which has potentially left them without the financial support they were entitled to under their policy.

Recommendations throughout this report

2.71The inquiry received and heard strong evidence that too many consumers’ claims experiences following the major floods were unfair and unacceptable. Their experiences illustrate the systemic problems in claims handling and dispute resolution identified in the ASIC review and Deloitte report.

2.72The Committee endeavours to make recommendations throughout this report for governments and insurers to implement, with the aim of ensuring that the negative impacts of the next flood event or natural disaster are not further compounded by insurers’ poor claims and complaints handling. The Australian insurance industry must be able to properly support policyholders in times of crisis, even where that disaster is catastrophic in scale. The recommendations will also provide guidance for governments to address the lack of support for homeowners in flood prone areas, given the emerging issue of flood insurance accessibility and affordability.

2.73The Committee also acknowledges that many of the issues identified in this report, and the recommendations made, are applicable to other natural disasters (such as bushfires or cyclones), or even to high-impact individual household insurance events. Therefore, even though a recommendation may only mention flood, the Committee encourages the Australian Government and insurers to analyse the recommendation’s broader implications for best practice, and to implement the relevant response so as to have the widest possible benefit to all policyholders that may be affected by similar circumstances, regardless of peril.

Footnotes

[1]Insurance Council of Australia (ICA), Insurance Catastrophe Resilience Report 2021-22, August 2022, pp. 8-16; ICA, Insurance Catastrophe Resilience Report 2022-23 2023, pp. 10-14.

[2]ICA, Submission 11, p. [7].

[3]Bureau of Meteorology, Annual climate statement 2022, 8 February 2023, www.bom.gov.au/climate/current/annual/aus/2022/.

[4]Bureau of Meteorology, Special Climate Statement 75 – Australia’s wettest November on record, 2022, p. 4.

[5]ICA, Insurance Catastrophe Resilience Report 2021-22, August 2022, pp. 8-16; ICA, Insurance Catastrophe Resilience Report 2022-23, September 2023, pp. 10-14.

[6]New South Wales Government, 2022 Flood Inquiry: Volume Two: Full report, 29 July 2022, pp. 26-27; City of Greater Bendigo, Submission 68, p. [1].

[7]Queensland Government, South East Queensland Rainfall and Flooding February to March 2022 Review, October 2022, p. 28.

[8]ICA, Submission 11, p. [23].

[9]ICA, Submission 11, p. [4].

[10]ICA, Submission 11, p. [4].

[11]ICA, Submission 11, p. [13].

[12]ICA, Submission 11, p. [4].

[13]Data provided by the Insurance Council of Australia.

[14]Data provided by the Insurance Council of Australia.

[15]ICA, Submission 11, p. [17].

[16]Data provided by the Insurance Council of Australia.

[17]ICA, Submission 11, p. [15].

[18]Hon Dr Jim Chalmers MP, Treasurer, ‘Joint doorstop interview, Lismore, NSW’, Media Release, 13 January 2023.

[19]National Emergency Management Agency (NEMA), Supplementary Submission 40.2, p. 2.

[20]NEMA, Submission 40, p. 5.

[21]NEMA, Supplementary Submission 40.2, p. 2.

[22]Financial Legal Rights Centre, CHOICE, Consumer Action Law Centre, Westjustice, Submission 27, p. 58.

[23]Mr Andrew Hall, Chief Executive Officer, Climate, Operations and Strategy, Insurance Council of Australia, Committee Hansard, 5 February 2024, p. 8.

[24]Financial Legal Rights Centre, CHOICE, Consumer Action Law Centre, Westjustice, Submission 27, pp. 54-55.

[25]ICA, Submission 11, p. [13]; ICA, Insurance Catastrophe Resilience Report 2021-22, August 2022, pp. 8-16; ICA, Insurance Catastrophe Resilience Report 2022-23, September 2023, pp. 10-14.

[26]ICA, Insurance Catastrophe Resilience Report 2022-23, September 2023, p. 14.

[27]Deloitte, The new benchmark for catastrophe preparedness in Australia, October 2023, p. 84; ABC News, Longest New South Wales flood operation in SES history finally over after nearly six months, 9 March 2023, www.abc.net.au/news/2023-03-09/longest-flood-operation-in-ses-history-finally-over-in-nsw/102074328; ABC News, Man dies in Victorian floods as floodwaters moves south in Tasmania and NSW, 15 October 2024, www.abc.net.au/news/2022-10-15/victorian-man-dies-as-flooding-moves-south-in-tasmania-and-nsw/101540158.

[28]Community Statements, Committee Hansard, Lismore, 11 April 2024, p. 23; Community Statements, Committee Hansard, Maribyrnong, 17 April 2024, p. 17; Community Statements, Committee Hansard, Rochester, 18 April 2024, p. 27; Community Statements, Committee Hansard, Heathcote, 19 April 2024, p. 24; Community Statements, Committee Hansard, Molong, 7 May 2024, p. 35; Community Statements, Committee Hansard, Eugowra, 8 May 2024, p. 35; Mrs Louise Cormie, Portfolio Manager, Financial Stability, CatholicCare Wilcannia-Forbes, Committee Hansard, Eugowra, 8 May 2024, p. 2; Mrs Julia Davis, Senior Policy and Communications Officer, on behalf of Financial Rights Legal Centre, Consumer Action Law Centre, and CHOICE, Committee Hansard, 31 January 2024, p. 1; Mr Damien Stock, Chief Executive Officer, ARC Justice, Committee Hansard, 1 February 2024, p. 34.

[29]Ms Kellie Massouras, Manager Flood and Community Recovery, Micthell Shire Council, Committee Hansard, Heathcote, 19 April 2024, p. 4.

[30]Financial Counselling Australia, Submission 6, p. 3.

[31]Mayor Teresa Harding, Ipswich City Council, Committee Hansard, Logan, 10 April 2024, p. 29.

[32]Ms Amy Jones, Manager, Flood Recovery and Family Violence, FamilyCare, Committee Hansard, Rochester, 18 April, p. 13;Ms Juanita Pope, Chief Executive Officer, Victorian Council of Social Service, Committee Hansard, 31 January 2024, p. 17; Ms Lylia Martion, Financial Counsellor, Anglicare Victoria, Committee Hansard, 1 February 2024, p. 5; Mr Tyrone Shandiman, Chairperson, Australian Consumers Insurance Lobby, Committee Hansard, 1 February 2024, p. 27; Mrs Melinda McInturff, Community Resilience Coordinator, Community Plus Queensland Inc., Committee Hansard, Logan, 10 April 2024, p. 2; Ms Madeleine Serle, President, Maribyrnong Community Recovery Association, Committee Hansard, Maribyrnong, 17 April 2024, p. 10.

[33]Financial Legal Rights Centre, CHOICE, Consumer Action Law Centre and Westjustice, Submission 27, p. 33.

[34]ICA, Insurance Catastrophe Resilience Report 2021-22, August 2022, p. 13.

[35]ICA, Insurance Catastrophe Resilience Report 2021-22, August 2022, p. 13.

[36]ICA, Insurance Catastrophe Resilience Report 2021-22, August 2022, p. 13.

[37]ICA, Insurance Catastrophe Resilience Report 2021-22, August 2022, p. 13.

[38]ABC News, Wiped out and wanting answers, 6 December 2022, www.abc.net.au/news/2022-12-06/how-an-extreme-flash-flood-destroyed-eugowra/101711140.

[39]ICA, Insurance Catastrophe Resilience Report 2022-23, September 2023, p. 12.

[40]ICA, Insurance Catastrophe Resilience Report 2022-23, September 2023, p. 13.

[41]ICA, Insurance Catastrophe Resilience Report 2022-23, September 2023, p. 10.

[42]Mr Chris Connors, Chief Executive Officer, Sunshine Sugar, Committee Hansard, Lismore, 11 April 2024, p. 40.

[43]Legislative Council Environment and Planning Committee, The 2022 Flood Event in Victoria, July 2024, p. 19; Lismore City Council, Flood Response June 2022, June 2022, p. 15; Mr Tony Carusi, President, Northern Rivers Flood Action Group, Committee Hansard, Lismore, 11 April 2024, p. 44.

[44]Hawkesbury City Council, Submission 25, p. [1]; Indigo Shire Council, Submission 26, p. [2]; City of Greater Bendigo, Submission 68, p. [2]; Campaspe Shire Council, Submission 74, p. 1. Logan City Council, Submission 52, p. 1.

[45]Lismore City Council, Flood Response June 2022, June 2022, p. 15.

[46]Indigo Shire Council, Submission 26, p. [1]; Ms Kellie Massouras, Manager Flood and Community Recovery, Micthell Shire Council, Committee Hansard, Heathcote, 19 April 2024, p. 4.

[47]Lismore City Council, Flood Response June 2022, June 2022, p. 33; Dr Prue Bagley, Community Engagement Officer, ARC Justice, Committee Hansard, 1 February 2024, p. 42.

[48]Mr Steve Krieg, Mayor, Lismore City Council, Committee Hansard, Lismore, 11 April 2024, p. 8.

[49]Mr Stuart Locke, President, Go Seymour, Committee Hansard, Heathcote, 19 April 2024, p. 16.

[50]The McKell Institute, The Cost of Extreme Weather,September 2022, p. 24.

[51]The McKell Institute, The Cost of Extreme Weather, September 2022, p. 24.

[52]Australian Bureau of Statistics, Consumer Price Index, Australia, 27 July 2022, www.abs.gov.au/statistics/economy/price-indexes-and-inflation/consumer-price-index-australia/jun-2022.

[53]Deloitte, The new benchmark for catastrophe preparedness in Australia, October 2023, pp. 10 and 74.

[54]ICA, Insurance Catastrophe Resilience Report 2021-22, August 2022, p. 11.

[55]Hawkesbury City Council, Submission 25, p. [1].

[56]Hawkesbury City Council, Submission 25, p. [1].

[57]Dr Alan Cornick, Private capacity, Committee Hansard, Logan, 10 April 2024, p. 15; Ms Joanne Bradbury, Private capacity, Committee Hansard, Lismore, 11April 2024, p. 49.

[58]ICA, Submission 11, p. [23]; Mayor Pierce Tyson, Mayor, Moonee Valley City Council, Committee Hansard, Maribyrnong, 17 April 2024, p. 3; Mrs Julia Davis, Senior Policy and Communications Officer, Financial Rights Legal Centre, Committee Hansard, 31 January 2024, p. 10.

[59]Mrs Merilyn Denning, Private capacity, Committee Hansard, Heathcote, 19 April 2024, p. 24; Committee Survey Results; Mr Ellis Knight, Private capacity, Committee Hansard, Heathcote, 19 April, p. 29.

[60]Mrs Julia Davis, Senior Policy and Communications Officer, Financial Rights Legal Centre, Committee Hansard, 31 January 2024, p. 1; Ms Philippa Heir, Managing Lawyer, Consumer Action Law Centre, Committee Hansard, 31 January 2024, p. 3.

[61]ICA, General Insurance Code of Practice, 5 October 2021, p. 31.

[62]Mr Ram Kangatharan, Group Managing Director and Chief Executive Officer, Auto & General Insurance Company Ltd, Committee Hansard, 22 March 2024, p. 23; Mr Paul Fahey, Chief Executive Officer, Hollard Insurance Company, Committee Hansard, 21 February 2024, p. 26.

[63]Ms Aveley McCann, Private capacity, Committee Hansard, Lismore, 11 April 2024, p. 23; Ms Maureen Valent, Private capacity, Committee Hansard, Richmond, 9 May 2024, p. 42; Ms Terry Laurence, Private capacity, Committee Hansard, Lismore, 11 April 2024, p. 25; Ms Sarah Thomson, Private capacity, Committee Hansard, Rochester, 18 April 2024, p. 28.

[64]Ms Aveley McCann, Private capacity, Committee Hansard, Lismore, 11 April 2024, p. 23; Ms Maureen Valent, Private capacity, Committee Hansard, Richmond, 9 May 2024, p. 42; Ms Terry Laurence, Private capacity, Committee Hansard, Lismore, 11 April 2024, p. 25; Ms Sarah Thomson, Private capacity, Committee Hansard, Rochester, 18 April 2024, p. 27.

[65]Ms Maureen Valent, Private capacity, Committee Hansard, Richmond, 9 May 2024, p. 42.

[66]Ms Sarah Thomson, Private capacity, Committee Hansard, Rochester, 18 April 2024, p. 27.

[67]Ms Kathryn Swinton, Financial Counsellor, Anglicare Victoria, Committee Hansard, Maribyrnong, 17 April 2023, p. 27.

[68]Ms Kellie Massouras, Manager Flood and Community Recovery, Mitchell Shire Council, Committee Hansard, Heathcote, 19 April 2024, p. 5; Ms Latha Elenkovan, Principal Solicitor and Manager, Pine Rivers Community Legal Service, Committee Hansard, Caboolture, 9 April 2024 p. 22.

[69]Ms Kellie Massouras, Manager Flood and Community Recovery, Mitchell Shire Council, Committee Hansard, Heathcote, 19 April 2024, p. 5; Ms Elly Bird, Executive Director, Resilient Lismore, Committee Hansard, Lismore, 11 April 2024, p. 30.

[70]Ms Joanne Bradbury, Private capacity, Committee Hansard, Lismore, 11 April 2024, p. 49.

[71]AFCA, Submission 1, p. 20; Financial Counselling Australia, Submission 6, p. 6.

[72]Ms Madeleine Serle, President, Maribyrnong Community Recovery Association, Committee Hansard, Maribyrnong, 17 April 2024, p. 12.

[73]AFCA, Submission 1, p. 20; ASIC, Navigating the storm: ASIC’s review of home insurance claims, 16 August 2023, p. 10.

[74]Committee Survey Results, Appendix C.

[75]Financial Counselling Australia, Submission 6, p. 20.

[76]Allianz Australia, Submission 13, p. 11; Suncorp Group, Submission 12, p. 9; ASIC, Navigating the storm: ASIC’s review of home insurance claims, 16 August 2023, p. 13.

[77]Financial Counselling Australia, Submission 6, p. 35.

[78]Financial Counselling Australia, Submission 6, p. 35.

[79]Mr Warren Lumley, Secretary, Wisemans Ferry Community Men's Shed, Committee Hansard, Richmond, 9 May 2024, p. 40; Ms Elly Bird, Executive Director, Resilient Lismore, Committee Hansard, Lismore, 11 April 2024, p. 30.

[80]Ms Elly Bird, Executive Director, Resilient Lismore, Committee Hansard, Lismore, 11 April 2024, p. 30.

[81]Financial Counselling Australia, Submission 6, p. 6.

[82]Financial Counselling Australia, Submission 6, p. 6; Ms Bernadette Wright, Counsellor and Mental Health Support, Rochester Community House, Committee Hansard, Rochester, 18 April 2024, p. 11.

[83]Legal Aid NSW, Submission 34, p. 23.

[84]ICA, Submission 11, p. [13].

[85]ICA, Submission 11, p. [16].

[86]Deloitte, The new benchmark for catastrophe preparedness in Australia, October 2023, p. 67.

[87]Deloitte, The new benchmark for catastrophe preparedness in Australia, October 2023, p. 67.

[88]Deloitte, The new benchmark for catastrophe preparedness in Australia, October 2023, p. 69.

[89]Data provided to the Committee by the General Insurance Code Governance Committee.

[90]Jobs and Skills Australia, Submission 42, p. 3.

[91]Jobs and Skills Australia, Submission 42, p. 19.

[92]ICA, Submission 11, p. [22].

[93]ICA, Submission 11, p. [7].

[94]ICA, Submission 11, p. [7].

[95]ICA, Submission 11, p. [7].

[96]Deloitte, The new benchmark for catastrophe preparedness in Australia, October 2023, p. 68.

[97]Deloitte, The new benchmark for catastrophe preparedness in Australia, October 2023, p. 14.

[98]ICA, Submission 11, pp. [20-21].

[99]ICA, Submission 11, p. [22].

[100]Deloitte, The new benchmark for catastrophe preparedness in Australia, October 2023, p. 72.

[101]Deloitte, The new benchmark for catastrophe preparedness in Australia, October 2023, p. 72.

[102]Deloitte, The new benchmark for catastrophe preparedness in Australia, October 2023, p. 74.

[103]Financial Legal Rights Centre, CHOICE, Consumer Action Law Centre, Westjustice, Submission 27, p. 37.

[104]Financial Legal Rights Centre, CHOICE, Consumer Action Law Centre, Westjustice, Submission 27, p. 37.

[105]Financial Legal Rights Centre, CHOICE, Consumer Action Law Centre, Westjustice, Submission 27, p. 37.

[106]Campaspe News, ‘Frustrated residents seek help from state MP’, 20 February 2024; Mr Steve Krieg, Mayor, Lismore City Council, Committee Hansard, Lismore, 11 April 2024, p. 8.

[107]Financial Legal Rights Centre, CHOICE, Consumer Action Law Centre, Westjustice, Submission 27, p. 45.

[108]Mrs Prue Monument, General Manager, Code Compliance and Monitoring, Australian Financial Complaints Authority; and Chief Executive Officer, Banking Code Compliance Committee (on behalf of General Insurance Code Governance Committee), Committee Hansard, 23 February 2024, p. 10.

[109]QBE Insurance Group, Submission 17, p. 24.

[110]Ms Jacqui Cavanagh, Senior Lawyer, Financial Rights and Housing, Caxton Legal Centre, Committee Hansard, Caboolture, 9 April 2024, p. 21.

[111]AFCA, Submission 1, p. 13.