Forget the insurers, let's blame the banks

Last month it was reported across the nation how Westpac human resources chief Peter Hanlon had told the current Senate inquiry into bank competition that his bank was considering making flood insurance compulsory for home-loan customers. “It’s not the practice in Australia at the moment”, he said, “but it is something we are looking at”.

Every lender should immediately make flood and surge insurance compulsory for all borrowers - including business and commercial customers. No matter if the mortgaged property is on a hill, or that leased business premises may be “high and dry” - as many real estate agents now advertise properties for sale in certain suburbs. Such lender-required (and risk-spreading) insurance cover would need to extend very clearly - with fair and plain-language wording - to storms, flash-flooding, riverine flooding and ocean surges. If annual premiums for properties more at risk prove to be higher than for those less at risk, lenders may need to provide credit for this to their customers - as happens now with mortgage insurance premiums.

Insurers who are not prepared to offer the sort of comprehensive, no-nonsense and unambiguous cover required by lenders (and which is somewhat belatedly being pressed for by governments, the media, consumer bodies and flood and surge victims themselves) may find themselves writing fewer policies. Hopefully insurers, who do not presently include standard flood and surge cover in their policies, will see the merits of doing this.

One recent post-flood and post-cyclone newspaper editorial described the “agonies of uncertainty” resulting from insurance policy legalese and claims procedures while concluding that “insurers have a moral duty to end the agony”. This same sentiment could well apply in the same context to banks and other lenders.