Being underinsured can leave you in a no-payout loop, as this flood-affected caravan park is discovering

 In Home News Section, Uncategorized

Nearly a year after losing their home and their caravan park business to a rare flood event, Geoff and Barbara Calvert are stuck in a no-payout loop as a stand-off continues between their insurance company and the government’s flood relief program.

In the aftermath of the flood, the Kingston on Murray caravan park owners discovered that their business had been underinsured.

While the couple’s property had been insured for just $2.6 million, a valuation found it should have been about $4 million, taking into account certain high-risk features.

A mismatch between the valuations has meant the full value of the claim won’t be settled with the insurance company and, depending on the disparity, may lead to a reduced payout.

Their insurance company has also been reticent to reimburse them until it knows how much government assistance the couple can access, leaving them in a catch 22 situation.

As the couple continues to contest their insurance company’s under-insurance claim, they cannot reopen their business or restart their lives.

Trapped in a ‘vicious’ cycle

Geoff and Barbara Calvert left their business in December last year as Murray River floodwaters rose.

Ten months on, the Calverts remain unable to return to their home or their caravan park while their insurance is processed.

The delay has cut them off from their source of income, which further complicates their ability to access government grants.

“We’re trapped in a vicious circle. The insurance company doesn’t want to give us any payout until they know what government [support] is available,” Mr Calvert said.

“But the government can’t give me any grants because we don’t know what the shortfall is yet either.

“We’re caught in a catch 22.

“Insurance has been a major headache for us, and it feels like we aren’t any closer to settling our claims,” he said.

The Calverts said their experience with the insurance claims had been confusing.

And they could be looking at a payout at a fraction of the amount of what their home, property and business was collectively worth.

The problem of being underinsured

Andrew Bassingthwaighte, director of Xcelerate, a company that specialises in handling insurance claims, said that hefty penalties apply for underinsurance.

“Essentially, when you take out an insurance policy for a property you need to make sure you have the values of the property which you are insuring correct,” he said.

“When you’re underinsured, a penalty called the ‘co-insurance penalty’ can apply.

“It means they are looking at about 48.8 per cent of their policy being received on settlement.”

For the Calverts, it means they may receive a payout of just over $1 million, despite being insured for $2.6 million.

Mr Bassingthwaighte was brought in by the Calverts’ insurance broker to develop their claim after the valuation of the caravan park was contested.

Risk-reduction key to lower premiums

The Actuaries Institute recently released a paper examining flood risk and the role it plays in home insurance.

“Premium affordability is disproportionately shouldered by the most financially stressed households,” the institute’s chief officer Elayne Grace said.

“We’ve seen from the flood experience of the past year, devastation can come to the community and cause tremendous stress.

“Let’s talk about the most important thing first, which is risk-reduction measures. This is the key thing: reduce the risk, reduce the cost, reduce the premiums.”

Ms Grace said access to insurance gave communities a safety net.

“Insurance is a fundamental product to ensure that communities can exist,” she said.

“It gives people such relief to just have it, to know if anything bad happens they have a safety net. It is going to make them more resilient. They will be able to get back to normal.

“Australia relies on these different communities and the communities rely on insurance.”

As part of the paper into flood costs, the institute proposed a number of solutions.

“We’ve always known Australia is exposed to natural disasters. We know climate change is going to increase this problem,” Ms Grace said.

“It’s really important we proactively manage this risk and work together.”

(Original ABC Article)