Australia: Standardising natural hazard definitions
Source: Middle East Insurance Review | Apr 2024
Australia has begun an exercise to standardise natural hazard definitions and to review the standard covers for insurance.
The Australian assistant treasurer and minister for financial services Stephen Jones released a 22-page consultation paper Standardising natural hazard definitions and reviewing standard cover for insurance in March 2024.
The purpose of this consultation exercise is to improve consumer understanding of insurance products as part of a package of reforms designed to:
- Reduce the cost of insurance in communities at risk of natural disasters.
- Enhance mitigation measures.
- Promote better outcomes for consumers.
Treasury has also been tasked with exploring possible natural hazards terms to standardise for insurance contracts and to review the standard cover regime. Standard definitions in insurance refers to the process of mandating that all insurers use the same definition for a particular event in their insurance contracts. Currently the only natural hazard definition that is standardised (in Australia) is ‘flood’. This was done in 2012.
The Treasury will now consider standardising definitions for three other natural hazards: Fire, storm, and stormwater and rainwater runoff.
The Treasury will also consult on the standard cover regime, which has been in force since the passage of the Insurance Contracts Act in 1984.
The regime was established to provide standardised terms and conditions and improve comparability in certain types of policies but has declined in relevance because of subsequent legislative and policy design changes.
Separately, the Insurance Council of Australia (ICA) has commenced discussions with insurers about the possible adoption of standardised definitions for maintenance and wear and tear exclusions in policies.
Any adoption of standardised maintenance and wear and tear exclusion definitions by insurers through this process would be subject to obtaining required regulatory approvals. M