Press Conference

03 February 2011


SUBJECTS: Insurance


Sorry that I'm late but the meeting with the insurance companies went on for two hours, but it was a good meeting so I appreciate your patience.

The Prime Minister will be speaking in a few minutes, giving the - the Prime Minister will be speaking in a few minutes about Tropical Cyclone Yasi. Suffice to say that the Commonwealth Government and indeed all of Australia's thoughts are with the people going through this terrible storm. And the Commonwealth Government stands ready to do whatever it takes to assist people in these next hours, days and weeks.

But I'd like to mainly confine my remarks to a meeting with insurance companies, and then obviously take questions, if that's alright.

Myself and representatives of the federal government met with the CEOs of Australia's largest insurance companies today. This meeting had been scheduled to look at how the insurance industry can further improve the insurance product to assist people who have gone through the recent natural disaster of the floods, which are still just receding in some parts of Victoria as we speak.

The meeting has been made more timely, of course, as we watch the devastation of Tropical Cyclone Yasi unfold on our TVs last night and this morning, and through the course of today.

I am pleased to say that the insurance industry was very cooperative. The insurance industry indicated to me that they're handling at the moment nearly 40,000 claims arising from the floods. They're handling nearly 5000 - that's 40,000 insurance claims in Queensland, nearly 4500 claims in Victoria, and they have literally thousands of people on-call to assist people as the cyclone event continues through and people start to work out what's happened and what assistance they require.

I'm pleased also to say that the insurance industry recognises that now is the time to have a standard definition for floods. That will not be without its complexity but they recognise that for consumers, for certainty, for competition, for security that we should - this industry is capable of creating common definitions, a common denominator across insurance policies so that all Australians know when they're seeking flood cover, they can price it and get the best product and know in fact that they are insured.

I'm also pleased that the insurance industry agreed today to ensure that the information about - in insurance policies should be in plain English, that this is not beyond the capacity to further improve policies that people sign.

I think everyone who has a home and contents insurance policy knows that a lot of the fine print is very hard to decipher, and that when tragedy strikes, as it has with the floods, many people are left scrambling to wonder if they are adequately insured or properly insured for the flood or the event which has just occurred.

What's good is the insurance industry is committed to meet with me again twice in the next four weeks, and to talk with consumer groups how we once and for all sort out a standard definition, how we once and for all put these arrangements into plain English so that people know what they've signed up for.

We've also agreed to cost and check out the feasibility of broader information being available to insurance companies and others when assessing risk. I refer specifically to flood mapping so that insurance companies are able to assess likelihood of risk and offer products which people can take to secure their houses.

There's a range of longer term issues also on the agenda; better consumer protection, and also I have to say the insurance industry made the point that they require the support of the community and the government at all levels to ensure that there's better resilience put in place in communities, better flood mitigation infrastructure, and that the general community is generally more - not only literate about their insurance but understanding of the risks of land use and where people put their houses.

I'll take questions at this point.


The claims that have come in already, has the insurance industry [indistinct] described this as a catastrophe [indistinct]?


Insurance is designed for bad news. That's why we take it out. They are certainly assessing that the cost of the floods up to now in Queensland is north of $1.5 billion in claims. They assess the Victorian floods are not anywhere near that scale in terms of cost at this point, but of course the floodwaters only started to recede in Swan Hill in the last number of days and hours.

So they weren't using words like catastrophe but they do accept that this is a significant nature they recognise it's a terrible natural disaster and there will be a bill to pay.

And in terms of Tropical Cyclone Yasi, obviously they, like everyone else, [indistinct]. And then most importantly the people caught up in this storm are just trying to assess who is there and where people are and the extent of the devastation, so they can't put any cost in terms of this, and it's far too early to do that.


What will you do if the government doesn't - sorry, what will the government do if insurance companies don't [indistinct]?


Well, I have to say that conjecturing about plan B if insurance companies don't cooperate is not something which I wish to speculate upon.

I think that the insurance industry and consumers all know that the time is right, the time is now to help improve insurance product offerings and clarity.

But let's be clear, getting a standard definition is not going to be the panacea, the silver bullet for sorting out all costs arising out of floods. It's a whole mixture of events, from what the government is doing in rebuilding infrastructure, right through to individuals taking responsibility, right through to inquiries to determine what is the best way in the future to prevent the sort of destruction which has occurred up to now.

But there's no question that the insurance industry accepts that having better contracts and clarity of what's covered and what isn't is an important building block to ensuring that Australian communities are resilient and safe.


How confident are you that they'll be able to reach an agreement on a common definition of flood, and plain English [indistinct] clauses?


We, meaning the insurance industry, government and the consumers - people who live in Australia - have no choice but to sort this

out. It is not acceptable in the future not to have standard definitions. It is not acceptable in the future not to have plain English so people know what they bought and what they haven't bought.

But let's be also clear, this is a problem which has been in the making for some time. The insurance industry have said that they are available to work on this issue, and I take them at their word.

But we are having two more meetings in the next four weeks to ensure that plan A - getting this sorted out - does actually occur.


So is this an admission that the wording to date has been, you know, a bit dodgy, for want of a better word? You're looking forward to the future but what about those who thought they were covered? Is that an admission that it wasn't the best wording and therefore they might have been duped?


I think that's about four questions in there. Just to talk about people currently who have gone through their natural disaster of the floods, if they believe they have a claim they should make a claim. If they believe that their claim is not being treated appropriately, they have the opportunity to appeal to the Financial Ombudsman Service.

I should say that most claims are being accepted. We've also arranged with the insurance industry to get hydrologists. These are experts who will tell you where the water came from, and that helps make - resolve the claim. Plenty of people would say the water came from the storm, that's true. But it's important that the claims are handled quickly. Most insurance companies have committed to do this within specified timelines.

For people who are unhappy with the way they're being treated, many are contacting their local member of parliament. But for those there is the Financial Ombudsman Service. They have a right to claim and they have a right to appeal.

In terms of admissions about what's gone wrong in terms of insurance, I'm more interested at this point in sorting out the problem for the future than allocating blame for the past. People will be their own judges of what's right and wrong. Individuals make choices about what they insure for. I do encourage that people insure for all the value of their contents, not just a value which might be 10 or 20 years old.

But I do believe that the insurance industry showed every evidence today in their commitment to two more meetings in the next four weeks to at least rule a line under these issues of plain English, of standard contracts, and indeed all of us to look at how we can advance the debate about better risk mapping, data mapping of flood areas.

There are more issues in insurance than just that. But these issues are certainly on the agenda to resolve straightaway.


Are you aware of any insurance companies that are having trouble [indistinct] claims?


No, I'm not. Insurance companies have re-insurance arrangements, by and large; that we've got very good regulators who constantly watch this issue. Certainly people are coping with floods. I'm not aware though that there's any problem with any insurance companies, and the regulator certainly hasn't advised us of that.


[Indistinct] cuts in government spending [indistinct]?


I think it's impossible at this point, and I'll be interested like everyone else to hear the Prime Minister's words in a few minutes, to judge the extent of the devastation.

Clearly, from what Premier Bligh said and what's been reported in the open media, there are some towns who have been hit very hard and houses have been destroyed.

For me, the most important question is has there been any loss of life, are people hurt. That, to me, is the question. Buildings and business, they are very important things but it is money. And money is important but it's not everything. It's - the key question for me is whether or not there's been loss of life and who has been hurt.

In terms of the cost of damages, I don't believe anyone can give you any reliable estimate this morning other than people forming their own judgements about evidence of individual destruction of houses. I just don't know yet.


[Indistinct] flood levy [indistinct] raised?


No, the Prime Minister has been clear. We put the flood levy in place. It's a one-off levy. It's to assist the significant economic dislocation of the mass of water which covered much of Queensland and moved through Australia and in Victoria. The flood levy has been put for a set purpose. It's a one-off.

For many people who - for people who earn under…$100,000 to $80,000 it's $2.88 a week. So we're not talking about the flood levy for any other purpose than what has been said.


[Inaudible question]


Yes, we did raise - having said that there were several issues we raised as first order issues, I'm at pains to stress we actually raised other issues which are also issues which have bedevilled relationships between consumer groups and insurance companies. One of these is whether or not the insurance industry should be covered by the Australian consumer law, or have separate legal treatment under separate laws.

We've put the insurance industry on notice that it's not just consumer groups but a parliamentary inquiry has said there should be one law for all services to consumers. They're going to take that away and think about that.

But what I also know is that we shouldn't wait to resolve every possible issue, to resolve some issues where the work has already been done. So we've certainly raised the issue of consumers accessing legal protections. We're debating with the insurance industry the best mechanism for that.

But in the meantime we are multi-tasking. We're getting on with the issue of standard definitions; we're getting on with the issue of flood mapping; we're getting on with the issue of it being in plain English.

But there are many other issues to do with insurance. Are there areas, for instance, of economic activity or life in Australia which is simply uninsurable, and then what should the policy alternatives there.

So, we're talking all issues with insurance, and there are going to be other government inquiries, and the Queensland government has got an inquiry. We are raising consumer protection but those three points I raised initially are the ones which we're looking to make speediest progress on now.


Did you discuss the likelihood of premiums going up in the wake of the floods and the cyclone?


We agreed that it's hard for the insurance industry to estimate what premiums might be in the future. All - we want an insurance product which people can clearly measure against all the companies so you know what the real competition is between products.

We also want a - the cheapest possible, cost effective price conscience insurance industry.

But we have had natural disasters. The re-insurers overseas will weigh up what they charge Australian insurance companies in the light of these natural disasters. No-one can give me a definitive answer on that.

The challenge for government is to set policy which assures that premiums can be priced as competitively as possible in the light of these disasters.


Do you believe the Queensland government should have taken out comprehensive insurance [indistinct]?


Different state governments in Australia adopt different financial policies about insuring for loss in their state.

I don't think it's helpful for me or the federal government to start Monday morning coaching what the Queensland government should have done on insurance.

What I do know is that the federal government is going to keep all its commitments. We're determined to assist Queensland get back on its feet, as I know the Queensland government is.


Considering some of the policies you say may not have been in plain English, does the government or insurance companies feel some sort of sympathy to people who may not have realised that they weren't covered?


Absolutely. All of us who have ever taken insurance, indeed any of us who has ever opened a computer program where you've got a very wordy description which you have tick the I Agree box on before you can move to the next stage of the computer, know that there are policies which people don't read.

I don't hold all consumers responsible for not reading every aspect of fine print. None of us are ancient Egyptian scholars and we can't read hieroglyphics, and some fine print is simply too fine.

So, to that extent, what we say to consumers, if you genuinely believed you were covered for a policy, make a claim. If you genuinely believe you're not being treated properly, then you have a right of appeal. These matters will be dealt with on an individual basis.

We do note that many insurers are paying out claims; the picture is not all grim. I also note that some companies are already offering river flood products, and I note that some companies since the flood event have provided payments to their policyholders who weren't covered for floods, and they've done it on an ex-gratia basis.

What we would do is just encourage insurance companies, as I believe they've been doing, to not take a black letter approach but understand all the circumstances of their policyholder in assessing the merit of the claim.


You say [indistinct] claims are being paid out on, what sort of percentage are we talking about?


I'd have to come back to you better details than I have off the top of my head. But I understand that there's already been [indistinct] running into many millions of dollars of claims already paid out.


So you're satisfied with the performance so far?


Well, for individuals who have been - feel they've been aggrieved, I'm not satisfied for them. But I also don't think it's just - I don't think it helps the debate if public representatives simply say all insurance companies at all times are behaving badly, because I don't believe that to be the case.

There's a lot of - I would spare a thought for all those insurance clerks and people working in insurance who have tried to do their best to help people in the floods. They haven't taken their summer off either. They're standing there to help people. There's 60,000 people in the insurance industry. I believe many of them are conscientious. But that doesn't mean that some people aren't missing out, and for those people I've got all the sympathy in the world and we want to see them assert their right if they believe that they've got a claim.


[Inaudible question]


Well, what we see is that the Financial Ombudsman Service, they've reported to us that they're ready to take claims. There have been plenty of members of parliament, from all political stripes, who have been raising issues. We've been sorting out things behind the scenes.

There will be plenty of individuals who feel aggrieved. And, having gone through these floods, if your house has been inundated or you've suffered worse, well then the last thing you need is to be - have an insurance company which isn't handling the issue flexibly. I just also don't want to engage in bashing all insurance companies at all times.

What I want to see is standard definitions, plain English, better support, better products for consumers. We do that through cooperation in the first instance.