Forget the Insurers, Let's Blame the Banks

Published 16 February 11 06:05 AM | Peter Mericka 

OPINION
by Tim O'Dwyer M.A., LL.B
Solicitor
Consumer Advocate
watchdog@argonautlegal.com.au

 

The blame for many uninsured property and financial losses resulting from floods and from Cyclone Yasi can be sheeted home to banks, building societies, credit unions  and other lenders.

Never mind the much-vilified insurance companies whose doubly-devastated policy-holders have found themselves not covered for flood or storm surge damage.  While more than a few insurers may have failed to demonstrate any “utmost good faith” towards their policy-holders, the finger of blame in these tragic circumstances can also be pointed at a very culpable lending industry – without exception. By not making sure residential and business borrowers were fully and properly insured, banks and other lenders have failed miserably not only these customers but also themselves, and ultimately their own shareholders.

Why?  Lenders always for good reason obliged their property borrowers to take out and maintain insurance, but have never - in my decades of experience in handling property buyers’ conveyancing - required borrowers to secure suitably protective flood and surge insurance.   No lender, in my experience, ever asked a borrower for a flood search on a property being put up for security.  (How many conveyancing solicitors raised flood and flood/surge insurance issues with buyer clients or undertook flood searches, is another question for another time).

Nevertheless, despite obtaining valuations which not unexpectedly should have indicated flood or surge risks, property lenders inexplicably never saw - until now - the advantage for customers, themselves and shareholders in specifically requiring at risk mortgaged properties to be insured against flood and surge damage. 

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Filed under: queensland, banks, victoria, insurance, flood, flooding, insured, yasi, levee, flood insurance, insurer, credit union, flooding insurance, building society, water insurance

Comments

# Tracey said on February 16, 2011 8:01 AM:

I was wondering the same thing, Tim, wondering why the lenders didn't require their asset be secured against flood. I'd be interested to hear the lenders try to answer that question coherently.

# Terri Cooper said on February 16, 2011 9:58 AM:

Great article Tim - I agree that the banks are only too ready to accept the money they make from lending but don't care to go the extra mile to make sure that their clients are protected.  Many clients still rely on the banks and trust blindly that the lenders are doing the right thing but in doing this they are leaving themselves exposed to huge risks as we have seen in recent devastating times.

# Tim O'Dwyer said on February 18, 2011 11:31 AM:

Looks like more lenders are begining to feel compassionately guilty about their flood insurance failings. The Courier Mail newspaper has reported today that the National Australia Bank has set aside $15 million and pledged to pay the insurance claims of all its policyholders in Queensland, even though its policies do not cover flood. The Courier speculates that this decision is likely to put pressure on other companies and follows the example of RACQ and Comminsure which have committed milluions of dollars to "ex gratia" payments

# Glenn Twiddle said on February 20, 2011 8:37 PM:

What I thought was interesting on this matter, was Suncorp got a whole lot of favourable PR for their honouring of flodd claims.

My best friend was given ten minutes to leave his house, as access to his area (Karallee, near Ipswich) was about to be isolated.

Anyway, from the moment he called ANZ, after his house, and everything he owns was lost, have been amazing.

If their treatment of all their customers was as good as their treatment of my mate, they deserve as much praise as Suncorp.

Wonder what the banks will require in the future, possibly as a result of this article?

Glenn Twiddle

<a href="http://www.glenntwiddle.com.au/blog/">Real Estate Training</a>

# Andrew Girle said on February 23, 2011 8:04 PM:

Tim, my wife and I recently looked at a property which we particularly liked and which had a creek running through it. The current owner, when asked, said he had never seen flood water higher than halfway up to the house. The agent said 'yes, there is a flood line'. It cost me about $100 for a contour map and a flood search from the local council, and the interesting thing about that flood line? It was VERTICAL. The highest point on the block went 2.5m under water in 1974, and nobody knows how deep in 1893, the last REALLY big flood in the area.

Nobody told me a lie, but it was $100 well spent.

# Sajen Legal said on March 8, 2011 3:00 AM:

Completely agree with Terri Cooper above, lenders are business oriented rather than customer oriented.

# Tim O'Dwyer said on April 16, 2011 2:12 PM:

WATCH THIS SOGGY SPACE:

http://www.couriermail.com.au/business/boq-considers-compulsory-insurance-to-cover-flood-risk/story-e6freqmx-1226039896330

http://www.smh.com.au/business/bank-loans-in-spotlight-20110412-1dcl2.html