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NZ broker flags flood challenges as insurers consider standard definition 

New Zealand broker Crombie Lockwood says securing flood insurance coverage has become increasingly difficult after many insurers adopted a tougher underwriting approach following the Auckland catastrophe in January. 

The broker flagged the problem in a market update as a spokesperson for the Insurance Council of New Zealand (ICNZ) confirmed the industry is considering developing a consistent flood definition for commercial property. 

Crombie Lockwood says most insurers are now refusing to consider new cover for homeowners located in the highest risk categories. 

“The availability of insurance to cover flooding is a growing concern,” the broker says. “While insurers may look at renewing existing policies, these customers can expect more stringent underwriting and restrictive policy terms and conditions.” 

Insurers are also considering risk-based pricing for commercial businesses, Crombie Lockwood says. 

“This means that an insurer will examine each risk on its own merit and consider factors such as past loss experience and susceptibility to future floods.” 

Crombie Lockwood says for those with higher flood risks, insurers are imposing special terms on material damage and business interruption policies. These generally relate to a higher excess for flood claims, a sub-limit for the amount of flood cover available, and a blanket exclusion for flood cover. 

Unlike Australia, New Zealand has no standard definition for flood. The Australian definition for flood was introduced in June 2012 after the 2011 Brisbane disaster and it applies to home and contents, small business and domestic strata title policies, according to the Insurance Council of Australia (ICA) website. 

For commercial policies, flood cover is not standard and has to be opted into, the ICA says. 

Insurance Brokers Association of New Zealand CEO Melanie Gorham says it is the right time to examine the challenges from flood exposure but believes the matter goes beyond coming up with a definition for the peril. 

“Central and local governments need to look seriously at the at-risk regions they allow people to build in… whether it be for domestic or commercial activities and the type of structures they allow to be built including aspects or features that reduce the risk,” she said. 

She says existing homes and structures may be located in areas that already “have an inherent exposure” where mitigation options are limited 

“It’s understanding where the problem arises and determining the appropriate solution as opposed to jumping into defining and excluding flood for a property or putting blanket exclusions into wordings” 

In the absence of a standard definition, New Zealand insurers have tended to rely on two main types of flood terms, pluvial and fluvial. 

Pluvial refers to flooding resulting from an accumulation or run-off of surface water from rain and fluvial is when flooding arises from water escaping from a river, lake, reservoir or other natural watercourse. 

“Some insurers refer only to fluvial, some to both fluvial and pluvial and we have seen some examples where sea surge or escape from drainage systems is included in the definition,” Crombie Lockwood says.