The Insurance & Financial Services Ombudsman Scheme (IFSO Scheme) has ruled that an insurer is not required to fund the additional cost of raising the finished floor level of a flood‑damaged home beyond what is necessary to obtain building consent.
The decision followed a complaint from the Chan family (names have been changed), whose property was extensively damaged in severe flooding and required a full rebuild. The insurer accepted the claim and agreed to fund the rebuild, but a dispute arose over whether the scope of works should include a higher‑than‑minimum floor level because the home is in a flood‑prone area. The insurer argued it was obliged only to raise the floor to the minimum standard necessary for consent and said there was no formal council direction that a higher level was compulsory. The Chans wanted a higher floor level to reduce exposure to future flooding. They also said that, if the dwelling was not elevated further, the council might place a natural hazard notice on the property’s title, which they believed could affect their ability to obtain insurance or finance in the future.
In assessing the complaint, the IFSO Scheme reviewed the wording of the house policy, building consent requirements, expert reports, and council information provided by both parties. The policy required the insurer to meet costs “reasonably required” to rebuild the home and to comply with legal or council obligations. The insurer offered to seek consent at the lower floor level and said that, if the council declined consent unless a higher level was adopted, it would then cover the extra cost. The Chans did not agree to that approach, relying instead on other expert advice in favour of a higher floor level regardless of a council ruling. Because there was no clear council decision requiring a higher finished floor, the IFSO Scheme concluded that the insurer was not required to fund the additional cost under the contract.
Insurance & Financial Services Ombudsman Karen Stevens said the complaint shows the gap between homeowners’ expectations around long‑term flood risk and the contractual limits of standard policies. “Many people want to future‑proof their homes against flooding, especially as severe weather events become more frequent. However, our role is to look at whether an insurer has correctly applied the terms of the policy. Insurers aren’t required to fund upgrades or improvements that go beyond what is required under the policy,” Stevens said.
Stevens noted that the scheme’s powers are confined to the policy as written and do not extend to directing ex‑gratia payments. “While we understand that having a higher floor level would be preferable to reduce future flood risk, and having a notice on the property title warning about flood risk would have significant financial implications for the Chans, the IFSO Scheme has no power to require an insurer to make payments outside the terms of the policy, on a goodwill basis,” she said. She said similar issues are arising more often as climate‑related events become more frequent and questions remain about how and by whom adaptation measures will be funded. “This issue is not going away, especially with the number of storms we’re seeing now. There are urgent decisions to be made about how adaptation will be managed and funded,” she said.
The decision carries several operational and advisory implications, particularly in flood‑prone or high‑hazard locations. First, it reinforces that reinstatement obligations are anchored to policy wording and external requirements such as building and planning rules. In the absence of a specific legal or council mandate, a higher standard of rebuild aimed at managing future risk will generally be treated as an upgrade rather than a claim obligation. Underwriters and claims teams may wish to ensure internal guidance and customer‑facing explanations consistently reflect this position.
Second, the ruling underscores the importance of evidence from councils and regulators. Where a higher floor level or other resilience measure is a formal consent condition, it is more likely to fall within the “reasonably required” costs of reinstatement. Where it is only recommended, the insurer’s obligation may be more limited. Claims handlers and loss adjusters may need to distinguish carefully between advisory comments and binding requirements when scoping repairs. Third, the case highlights a growing expectation gap around climate adaptation. Many policyholders assume that a post‑loss rebuild will provide a more resilient structure than they had before, especially for repeat or known hazards such as flooding. The decision suggests that, unless policies are specifically extended, standard replacement cover is not intended to fund all desired adaptation measures.
This creates a need for clearer disclosure and expectation management. Discussions at placement and renewal may need to:
The ruling also points to the value of thorough file notes and written advice. As more properties are subject to hazard mapping and potential title notations, complaints may increasingly test what clients were told about coverage for upgrades and adaptation. Clear records of how policy limits, council requirements, and potential gaps were explained will be important in defending advice and managing expectations.
Finally, the decision contributes to a broader industry conversation about the role of private insurance in funding climate adaptation for existing housing. While insurers may respond to changing risk through pricing, terms, and capacity, the IFSO finding signals that standard claims processes are unlikely to become a primary funding mechanism for non‑mandated resilience improvements. This may place more focus on coordinated approaches involving homeowners, lenders, central and local government, and, where appropriate, targeted insurance solutions for higher‑risk areas.
