With the Insurance Council of Australia (ICA) declaring the recent flooding on the New South Wales’ mid-north-coast a catastrophe, home and/or property insurance is once again in the spotlight.

One of the many questions property owners should ask when reviewing their property insurance is, what actually does their insurance provider define as a flood?

After the 2011 Queensland floods, an industry-standard definition for floods was legislated as being:

‘Flood means the covering of normally dry land by water that has escaped or been released from the normal confines of:

1. any lake, or any river, creek or other natural watercourse, whether or not altered or modified; or
   B. any reservoir, canal, or dam.’

But different insurers use different terms and will have different levels of cover, and this is where confusion slips in. What does seem to be important to insurers, is the source of the water; common phrases used in insurance policies include:

• cover for flash flooding due to heavy rain
• cover for flooding from a river or creek due to heavy rain
• cover for flooding due to storm surge
• cover for damage caused by rainwater runoff (a flood caused by heavy rainfall without adequate drainage)
• cover for flood due to a rise in seawater, or for tidal flooding.

But it doesn’t end here. For example, where flooding or damage is attributed to a storm, insurers may ask how soon after the storm the flooding occurred before they decided to pay out for the damage.

What’s the risk?

With the above in mind, there is a real danger homeowners’ and/or owners of investment properties may find they aren’t just under insured, but actually they aren’t covered at all for a particular type of water damage.

At best, the property owner may just have to fork out for a ruined carpet; at worst, they may find they are having to rebuild their property from their own pocket.

How to minimise risk

Ideally, you’ll have assessed the risk of flooding before you buy the property. The City of Newcastle has interactive mapping for general flood awareness purposes only and danger of flooding will come up in the searches.

You can also contact your insurance company to find out whether they classify the area as a risk, and what the premiums are – if they’re high, then the chances are there is a strong risk of flooding.

It is imperative you read the policy small print, and check with the insurer what it will and won’t cover in relation to floods; if a particular type of flooding isn’t included, you may need to pay extra as an add-on to your premium.

We also suggest property owners consider a ‘sum insured’ in their policy; this is the total value of the insurance policy in the event the home and all contents are destroyed. That way, you aren’t going to be hit with a massive amount of money if you have to start from scratch again.

Strata and community titled properties will generally include buildings insurance in their annual fees, but contents will not be covered – this means you will either have to pay for it, or if you’re a landlord, ensure your tenants are aware they will have to purchase their own contents insurance.

How to bring the premium down?

Insurers assess risk, and hence premiums in different ways, and some insurers may look more favourably on home owner who install flood defences or look at elevating the property.

We suggest shopping around for property insurance, and compare like for like. Another way to reduce the premium is to consider altering policy excesses.

For property investors, we strongly recommend you use a specialist landlords insurance provider, rather than a usual insurance provider; there are other risk factors you will need to consider, such as non-payment of rent and indemnity, as these may not be sufficiently covered by some general providers.

We’re always here for an informal chat to answer questions, so give us a ring on 02 4956 9777, send us an email to mail@newcastlepropertymanagement.com.au or pop into our Cardiff office.

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