Understanding the difference between water damage caused by flood, storm or cyclones for insurance claims

Understanding the difference between water damage caused by flood, storm or cyclones for insurance claims

Understanding the difference between damage caused by flood water and damage caused by storm water is vital to ensuring you have the right insurance cover. That’s because whilst most Property Insurance policies cover loss or damage caused by storms, they don’t cover damage caused by flood water, unless this is specifically insured.

The Insurance Council of Australia (ICA) recently stated that the February-March floods, which hit QLD and NSW, are Australia’s most expensive natural disaster ever, costing almost $6 Billion in damage.

So, if the local creek overflows following a storm and creek water floods your premises – is it storm or flood water? With Australia already suffering the third La Nina in a row and with multiple storm and flood events in NSW and QLD, ensuring you have the right insurance in place can save a great deal of angst in the future. 

Understanding the definition of a flood

Following the 2011 floods, the Federal Government decided that a standard definition of flood was required for all insurance policies. The definition is water escaping, overflowing or being released from a lake, river, creek, canal, reservoir, or dam is flood water.

When is flood insurance important?

If your business premises are water damaged due to the local creek overflowing its banks, then any damage is likely to be flood water damage and only covered by your insurance if flood cover was insured. Not all insurers offer flood insurance, if they do offer cover, it is likely to be expensive. 

There can also be confusion when there is damage done by both stormwater and floodwater at the same time. In this case, only damage first caused by stormwater would be covered, not further damage caused by floodwater, unless flood damage is also covered under the policy. 

Understanding the definition of a storm

A storm includes cyclones or severe weather, which is often accompanied by strong winds, rain, lightening, hail, snow or dust. Rainwater or stormwater is rain that runs off or over the surface of usually dry ground and can include overflowing water from stormwater drains or gutters. So, stormwater and flood water is different and there is different cover for each type of damage.

When is storm insurance important?

Damage caused by storms are covered under Property Insurance policies. So, if a large tree is violently blown over by high winds during a storm and damages your café roof or rainwater then gets into the cafe, a claim would be made under your property insurance. 

In contrast, if a local creek overflows it’s bank following storms in the local area, then this would be floodwater, in accordance with the national definition for all policies. If there is damage, flood insurance would need to be in place for a claim to be made. 

If you live in the tropics, then there’s also the chance of cyclones causing water and wind damage. Just like flood cover, some insurers offer cover for cyclones, while others don’t. So, water damage from a storm would be covered, with water damage from a cyclone only covered if you have cyclone insurance. 

Do you need additional insurance?

Understanding the differences between types of water damage can be difficult. You’ll need to understand if you need the cover and what the cost and availability is in your area. 

If you would like to obtain professional advice about storm, flood or cyclone cover, contact your local adviser today. 

Important Information 

This communication including any weblinks or attachments is for information purposes only. It is not a recommendation or opinion, your personal or individual objectives, financial situation or needs have not been taken into account. This communication is not intended to constitute personal advice. This type of insurance product is designed for small and large businesses, that want to be covered against financial loss relating to accidents or personal injury involving contractors or sub-contractors.

We strongly recommend that you consider the suitability of this information, in respect of your objectives, financial situation and needs before acting on it. This document is also not a Product Disclosure Statement (PDS) or a policy wording, nor is it a summary of a particular product’s features or terms of any insurance product. If you are interested in discussing this information or acquiring an insurance product, you should contact your insurance adviser to obtain and carefully consider any relevant PDS or policy wording before deciding whether to purchase any insurance product.

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