Treasury has released a Consultation Paper dealing with improving consumer understanding of insurance policies and the different approaches taken by insurance companies on coverage for water damage, including flood.

The Consultation Paper contains two proposals designed to address those issues by requiring:

• a standard definition of flood, for use in insurance policies; and
• short, simple, key facts summaries for insurance policies to be made available to consumers.

The proposed standard definition is:

‘Flood’ means the covering of normally dry land by water that has escaped or been released from the normal confines of:
(a) any lake, or any river, creek or other natural watercourse, whether or not altered or modified; or
(b) any reservoir, canal or dam.

There is also a proposal that the General Insurance Code of Practice be amended so that insurers must make a final determination on a claim within six months of the claim being notified, unless there are exceptional circumstances.

The Natural Disasters Insurance Review is due to report back to the Government by 30 September 2011.