This is why we have a problem.
Some issues need to a resolution not a perfect solution. While all interested lobby groups debate the situation for decades the problem persists. It is governments job to set policy and as such they should set the definitions for flood and the insures can work within that frame work. The key is for the insured to know what they are getting and if that's no flood insurance so be it.

In the “final wash”, the obvious omission from debate on the issue of flood insurance is not the argument whether a property is covered for the varying types of originating causes for the flood or not, but the more critical element or question is “who should own the responsibility for insuring the property in the first instance”.

Presently the purchaser of the property (the mortgagor) has a responsibility to the financier of the property (the mortgagee) to insure the property; together with the incidental agreement, to maintain the property in reasonable order.

It is within my scope of understanding that if the mortgagee (the bank for instance), has the potential to lose the ability to reclaim their asset (money invested in the mortgage), if the asset mortgaged is destroyed or lost value due to catastrophe of fire or flood, for example, why is the mortgagor responsible for insuring the property at all? Surely the mortgagee (bank) has a responsibility to insure the risk to their own asset, at least to the value of their investment.

The clarifying of this point would minimise the devastation caused by non-insured property owners still holding a liability to repay a mortgage following the total loss to property not insured, or not sufficiently insured, but remaining encumbered with a loan repayment liability to the mortgagee. The current situation precludes the option to victims of flood, to walk away free of the loan repayment commitments and simply start from scratch to rehouse themselves and their families, and abandon dangerous and flood prone areas altogether

What should be classified as flood prone, 2 meters above sea level or 6 meters above sea level. There's no set rules for a flood.
Brisbane is always going to be in the flood prone stakes, with a dam in the area. Floods and drought will come more common.
It's one thing to make rules for insurance companys and another to get them to take up the offer. If you make payouts to common you won't be offered insurance. Easy as that.

The definitions are clearly the key. My (admittedly amateur) view is that the definition submitted to the ACCC specifically excludes rivers engorged with water that approach or exceed historical flood levels.

And perhaps that is as it should be. Who among us would offer to insure the replacement cost of a house built on a river bank, perhaps 3m below recorded 1974 flood levels. The owner of that house knows (or should know) that once in every twenty, thirty or forty years, the river will flood and his house will be inundated. That is a certainty. Insurance is NOT about covering certain risks.

There may be ways to develop insurance cover for such properties. For example, if a) all flood prone properties (ie those built below known flood levels) in Australia participated and b) there was some recognition that the intervals between floods may be twenty years or more, then there may be an insurance product that can be offered at an attractive price.

diver dan, you raise an interesting point - but (to my admittedly limited understanding) a flawed one.

When you take out a mortgage to buy a house, the house becomes your asset, the debt becomes your liability. The bank does not acquire an asset - after all, you hold the title on your property. If you have a guarantor on a personal loan, the bank does not take out a life insurance policy on that guarantor. If the guarantor dies and you default on your loan, the bank may seek recompense out of the guarantor's estate.

Similarly, if your house floods, it is your asset - not the bank's - that loses value. You are, in a simplistic sence, the bank's asset, and your value to the bank remains unchanged. You still owe the same amount of money, and the bank has the same earning potential from you. It is you, and your finances, that need to be covered from the bank's point of view. Whether you repay the bank through the sale of your house or through another means is immaterial. The house simply stands there as an assurance that, if your life goes down the drain, the bank's business won't go down the drain as well.

There must be differences between states. You build a house here and you don't get the title until all money has been paid back. You cannot get a mortgage without full insurance. If you find you cannot pay anymore you give the keys back to the bank, the bank then resells the house and you get anything over the market value of the house.
If you want to sell your house before it is paid for, that,s ok but the loan stands.

Otokonoko:

Read a579 below. He/she make the point, the title deeds are held by the bank to ensure the security of the banks asset (Your house).

I make a point that written in the loan agreement with the bank are clauses that compel the mortgagor to insure the property on behalf of the mortgagee (bank): here is a fundamental wrong! The only part of the asset affectively insured for the mortgagor is the capital gain component; that being the difference between the market value of the property and the value of the loan.

I maintain that the right to insure the capital gain component of the property at sale should be the arbitrary right of the property owner and not the forced mandate given by the mortgagee (bank) . This is a point conveniently avoided in the insurance debate.

The obligation to insure the banks asset by the mortgagor as it stands, forces the mortgagor into the tight corner of two options if the asset is lost to catastrophe: one is to continue the obligation to the loan repayments for years on a property that is rendered worthless by an extreme event or the second is to declare bankruptcy and face a seven year financial drought.

My argument maintains that if financial institutions were forced by government edict to insure their own assets, then it would be banks (primarily) forced to deal with properties in flood zones : It would be banks dealing with the slippery nature of the insurance industry and not the powerlessness of the individual under stress of the circumstances associated with total loss of their mortgaged asset.

Thanks for the clarification. Like I said, my understanding was quite limited. It's still limited, but a bit less so thanks to you and a597.

Ted another point is that consumers with limited time tend to request a home and contents insurance over the telephone [with their own same vehicle insurer].

Papers are despatched afterwards and few people read or check their policies.

It would be interesting to find out how the phone interviews were conducted in relation to the million dollar question 'Do you reside in a flood affected zone'? Also, the question itself, or 'Flood' term you raise in your thread, is the 'point' of the predicaments many QLD people have found themselves to be in currently.

Most people not having witnessed or lived through the 1974 floods would have stated 'no, its not a flood affected area' stating the truth as they know it.

Therefore, insurance companies may well face court dates in the near future commenced by their QLD customers who have paid their premiums, answered the phone questions truthfully and factually, as they have known their individual situations to be.

In the long run, I would advise insurance companies that it would be less expensive for them to pay at least half of the costs involved in restoration of their customers homes than face legal costs and the time involved attending court daily for years with claim disputes.