Whether you’re planning a sea change, a tree change or staying put, it’s vital to understand the hazards your home faces and what that means for your insurance needs, writes Campbell Fuller.
With their multi-million-dollar homes perched on dunes just metres from one of Sydney’s most prestigious beaches, the residents of Collaroy seemed to have it all.
What many didn’t have, they revealed after May’s damaging east coast low, were insurance policies that covered the damage to their properties caused by the waves and king tide. Most also no longer had back yards.
Few retirees making a sea change can afford to buy a property so close to the ocean that it’s threatened by king tides or coastal erosion. But the situation highlights the need for anyone moving home to understand the hazards at their new address, and the insurance implications.
Actions of the sea
The damage to about 10 beachfront homes at Collaroy highlighted the fact that most household insurance policies don’t cover ‘actions of the sea’. This reference covers a range of phenomena, and differs between policies. It typically includes wave damage and high tides. It can also include storm surge and tsunamis, though other insurance policies will cover both of these under some conditions.
A small number of policies on the market will cover actions or movements of the sea. Anyone lucky enough to own or buy a home perched by the ocean should shop around for the appropriate policy, and make sure they thoroughly read their insurance product disclosure statement (PDS).
In some parts of Australia, councils or private property owners have constructed seawalls to protect homes from rough seas and coastal erosion. The Insurance Council of Australia (ICA) considers that the planning and funding of such mitigation infrastructure is a matter for homeowners and governments.
Actions of the trees
For retirees who opt for a tree change to see out their golden years, rogue waves are unlikely to be a concern, but bushfire may well be. Bushfires are also a significant threat to some coastal communities, as residents along Victoria’s Great Ocean Road experienced last December when fires destroyed 116 homes.
All household insurance policies typically cover bushfire damage. The more pressing issue for policyholders is making sure they’re not underinsured. In the aftermath of the New South Wales Blue Mountains bushfires of 2013, it emerged some residents hadn’t bought enough insurance cover to rebuild their homes. This was partly because the rezoning of bushfire-prone land by local governments meant some homes were required to be rebuilt to much higher standards, substantially raising construction costs.
All households face the risk of underinsurance, and so an increasing number of insurers have incorporated insurance calculators into their sales processes. These calculators allow consumers to more accurately estimate the amount of home building and contents cover they require.
The ICA makes available free insurance calculators through its financial literacy website Understand Insurance. They are designed to take into account the vulnerability of homes to bushfires and other hazards, and what impact this may have on reconstruction costs.
Actions of the breeze
Breeze doesn’t exactly do justice to the destructive power of the cyclones that regularly batter Australia’s north each year. The ICA estimates that more than a million homes are exposed to a cyclone passing within 50km at least once a decade. That number increases each year as further development takes place in exposed areas. Though overwhelmingly a threat to northern Australia, cyclones have historically tracked as far down the east coast as Newcastle, and well south of Perth in the west.
Home and building insurance policies typically cover cyclone damage as standard, but once again it’s important to make sure the sum insured is sufficient to cover rebuilding costs. Be aware that rebuilding costs are generally more expensive in rural and regional areas than the major cities.
The cost of household insurance claims in northern Australia is five times greater than Brisbane, Sydney or Melbourne, primarily due to cyclone damage. Consequently premiums are typically also higher.
There are steps households in cyclone-prone areas can take to reduce their risk and potentially lower their premiums. Some insurance companies offer discounts to policyholders who undertake mitigation measures, such as reinforcing their roofs or windows. Policyholders have the option of accepting a higher excess in return for a reduced premium, or bundling several policies together with the same insurer to gain a discount.
Even households not exposed to cyclones are still vulnerable to storms that can strike anywhere at any time. Visit Understand Insurance for tips on how to protect your home and other property.
Actions of the streams
When it rains, it often pours in Australia, and floods cause devastating losses to homes, business, farms and livestock. When the country was first being settled, it made sense to establish towns close to rivers and lakes for transport and agricultural purposes. Inadvertently, this led to a substantial amount of development on flood plains.
Although geospatial flood mapping means town planners are far more conscious of flood risk, some development still takes place on flood plains. The ICA estimates about 15 per cent of all addresses (commercial and residential) have some flood risk.
Flood insurance is available to all homes and businesses regardless of location, and 93 per cent of all new household insurance policies now purchased include flood cover under the government’s standard definition.
Where can I learn more about my home’s hazards?
The first step is to contact your insurer which should be able to provide some guidance as to what hazards a property faces. Local government can also be an invaluable source of information. Councils hold the most detailed flood data, as well as maps of local bushfire-prone land.
Insurers have long called on state and territory governments to provide better community information on natural hazards. The ICA is developing an online tool to help households assess what natural hazards their home faces, to what severity, and how resilient their building structure is to the threat. The Building Resilience Rating Tool (BRRT) is under development, but the public can test the site in Beta format and provide feedback.
ABOUT
Campbell Fuller is spokesperson for Understand Insurance, a financial literacy initiative of the Insurance Council of Australia, the peak body for the general insurance industry. Understand Insurance provides practical information to help you find out more about insurance and make decisions that meet your needs. For a comprehensive overview of all general insurance issues, visit Understand Insurance.
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