The Natural Disaster Insurance Review Panel (NDIRP) has recommended that insurers should automatically offer flood coverage to small businesses in its report into the Queensland floods earlier this year.
The panel recommended two alternative models for future flood insurance for homeowners: automatic flood coverage within the policies; or automatic flood coverage, with the consumer able to opt out.
However, the panel suggested that automatic small business coverage would increase activity in the market.
“If the automatic flood cover or automatic flood cover with opt-out models were to be applied to small business, all insurers wishing to remain in the small business market would be obliged to include flood cover in relevant insurance policies,” the report said.
“The Review Panel is only aware of one insurer in the current market [Zurich] who offers flood cover as standard on small business policies.
“Given that few insurers currently provide flood insurance widely, the automatic flood cover model could lead some insurers to reassess their participation in the market.”
The report found that the majority of small businesses do not currently have flood insurance.
“In the current market, there is limited availability of flood insurance for small businesses, for many of the same reasons that apply for homeowners; that is, the difficulty in adequately assessing and pricing the risk of flood.
“When a low level of demand is combined with the high cost of developing a flood insurance offering, there is very little incentive for an insurer to offer flood insurance.”
“Small business owners often treat insurance as an expense that needs to be minimised and, as such, they are less likely to purchase additional insurance such as flood insurance where they may perceive the risk of loss to be low.”
In a statement, Zurich yesterday reaffirmed its commitment to providing automatic flood cover for its clients and commended the NDIRP report.
"There is major confusion with customers and the public at large on the issue of flood cover,” the company’s General Insurance Chief Executive Officer Shane Doyle said. “Zurich simply believes it is the right thing to do to automatically embed flood cover in our commercial customers’ insurance policies.
“There’s clarity with Zurich’s commercial insurance with 98.7% of our Business Insurance customers having flood cover.”
The company said it had paid out 99.2% of its customers’ claims surrounding the flood events.
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