The Australian government is considering the standardisation of the definitions in insurance policies sold to the public particularly of natural hazards such as ‘fire’, ‘storm’, and ‘stormwater and rainwater run-off’. The criteria for standardisation is whether the terms used are causing consumer confusion. Does the term relate to a significant area of coverage in the Australian general insurance market, and has the particular natural hazard generated significant insurance damages in Australia in recent years or is expected to do so in future?

The Australian government considers that there is consumer confusion regarding what is and what is not covered by “fire”, with insurers having different approaches to dealing with melting caused by extreme heat, and damage caused by ash and smoke. These issues can rise in prominence when significant bushfires occur.

Storm is said to be a particularly complex concept, as it includes a range of activities that can cause damage, such as rain, wind, hail, snow, and flash flooding. There are also different types of storm events, such as cyclones and tornadoes. There are differences amongst insurers what is included in storm damage and a definition would be beneficial. A definition of “storm” would need to be clear that storm cover, flood cover, and rainwater run-off are each separate perils.

Stormwater and rainwater run-off are often used interchangeably to refer to rainwater that runs off land and flows from the area where it originally falls. Independent reviews in Australia have noted that stormwater and rainwater run-off are frequent sources of consumer confusion, particularly regarding their interaction with the standard definition of flood. Some insurers automatically exclude stormwater and rainwater run-off from policies if a consumer opts-out of flood cover. Where a house is inundated with water, it is not always clear to the insured what is covered and what is not. The government suggests that it may be beneficial to specify a timeframe for stormwater/rainwater run-off damages following a storm or heavy rain (such as 24/48 hours) which is often a feature of cover for run-off. The standard definition should make it clear that stormwater/rainwater run-off is separate to flood and storm cover, or alternatively that they should be bundled together. Even a standardised definition will not resolve all complexity in relation to the source of water damage to properties.

Other terms which cause consumer confusion but which are not being considered at this stage are “storm surge”, “earthquake”, and “actions of the sea”.

In South Africa the competition law issues about standardised wording would have to be taken into account. It is doubtful that there is similar confusion in South Africa. Fire and related perils are broadly covered. Rain versus run-off is an international source of confusion in the insurance world however.