A fund to subsidise insurance premiums should be considered for flood-prone areas, as a parliamentary inquiry hears of aggressive and confusing insurance processes following major floods in 2022.
A parliamentary committee began hearings on Wednesday into how insurers managed the influx of claims for the 2022 floods in NSW, Queensland and Victoria.
Consumer advocacy and legal aid groups fronted the inquiry citing delays for thousands regarding claims handling, lack of communication from insurers and systemic underinsurance and a lack of affordable premiums as major issues.
In their submission, Disaster Legal Help Victoria suggested a "reinsurance pool" similar to the one in Queensland which financially supports those impacted by cyclones to keep insurance premiums.
This should be applied to other disasters given the frequency and severity of disaster events across Australia, the organisation's program manager Sharon Keith said.
"If it does provide significant relief and reduce premiums for consumers, then the quicker it is applied to other extreme weather events, such as floods, the better for consumers across the country," she said.
The cost of insurance has been impacted by regular natural disasters and homes being built in difficult places, Legal Aid Queensland lawyer Paul Holmes said.
"The reality of subsidies is if you want to encourage people to take insurance and protect themselves, we need to reduce the cost," he said.
As living costs soar, insurance cover is a growing concern for consumer advocates who say companies' inconsistent cover definitions make insurance confusing and unaffordable.
About 60 per cent of homes affected in the 2022 floods were underinsured or not insured at all, Victorian Council for Social Services chief executive Juanita Pope said.
"People can't afford insurance when they're struggling to put food on the table, pay their energy bills and medical expenses," she said.
Ms Pope said insurers were outright refusing to cover some in flood-affected areas and withdrawing from entire regions at high risk.
"The consequences are as tragic as they are predictable. People living in flood-prone areas without adequate insurance are being pushed into poverty."
The Financial Rights Legal Centre's Julia Davis said insurers were hollowing out cover by changing different definitions leaving consumers unable to compare policies.
Training for claim managers and contractors was also under the spotlight with instances of insurers declining claims on spurious grounds.
"It comes from a culture where the first thought for the assessor is how can I decline this claim, not how can I pay this claim," Consumer Action Law Centre's Philippa Heir said.
A power imbalance relating to victims accessing expert reports to fight unfair 'wear and tear' clauses could be rectified by governments setting up a loan scheme to access independent assessors, Mr Holmes said.
Insurers have been accused of "rude, aggressive and bullying behaviour" blaming victims for letting their house fall into disrepair or insurance fraud and forcing them to accept cash settlements.
That experience was exacerbated by insurance delays with victims needing to chase up responses promised by the companies themselves, Ms Keith said.
"They often speak to a different person each time ... and that means they're required to tell their story over and over again," she said.
It comes after a review by the Insurance Council of Australia in October found the response from the sector did not anticipate the scale of the flooding.
The floods, which hit northern NSW and southeast Queensland in February and March 2022, caused $6 billion worth of damage and triggered more than 240,000 claims.