High and dry: are you covered for floods?

By Gillian Bullock, ninemsn Money

Don't automatically think that because you have a home and contents policy that you are covered for flood damage.

According to the Insurance Council of Australia, there are about 170,000 homes where a high flooding risk may lead to high localised premiums or a simple lack of available cover as the insurers cannot accept the risk level.

And even if you don't live in a flood-prone area, you may not be covered under your policy.

The Insurance Council has been working with both federal and local government to create a framework to make flood insurance available to nearly all households by reducing the risk of flooding to an acceptable level through mitigation measures.

In the meantime, however, it is wise to check your existing insurance policy to make sure you are covered. After all, floodwater damage can prove very expensive to rectify without insurance cover.

Kerrie Kelly, CEO of the Insurance Council, stresses the importance of knowing what is in your policy.

"No two insurance polices are the same as they are individual contracts specific to the needs of the insured," says Kelly. "The Insurance Council urges all policyholders to thoroughly check the details of their policy to ensure that they are appropriately covered for all the associated risks that their property and possessions may potentially be exposed to."

The Australian Securities and Investments Commission says flood cover is not offered in most house and contents insurance policies, although you will probably be covered for stormwater and possible rainwater damage.

Some insurers offer flash flooding cover for flood damage that occurs within 24 hours of the rain that caused the flood. However, this cover may be optional, cost extra and may only cover you for a percentage of your total sum insured.

The definition of flood can change from insurer to insurer. Some will cover you for flood from natural and artificial rivers, channels, lakes and dams while others will only cover natural bodies of water.

To find out if your existing policy covers flood damage you need to go to the Product Disclosure Statement (PDS) and check out the exclusions which will list whether or not you are covered for flood damage.

Some policies, for instance, will cover you for water damage caused by flood but will exclude damage caused by earth movement as a result of the flood.

As ICA's Kelly says: "Read your insurance policy carefully and make sure you understand what level of cover you have purchased. Make sure you understand any exclusions in your policy and check with your insurer if you are in doubt. If you do need to make a claim, it is important to remember that insurers assess every individual claim on a case by case basis."

This last point is driven home by NRMA Insurance which is looking at more than 160 claims relating to the northern NSW/south-east Queensland claims.

"All claims are treated on a case by case basis and we are currently assessing the damage," says William Reilly, NSW claims and assessing manager at NRMA. "This event appears to be overwhelmingly storm-related and as such covered under a standard NRMA home insurance policy."

The situation for commercial property is much the same as for residential in that it is a grey area where each insurer will have a different take on what is covered. Here it might make good sense to employ the services of an insurance broker to guarantee you get the best deal.