Five years of insurance profit funds CBA's flood gesture

Commonwealth Bank will look for reputational and marketing returns from its decision to allocate A$50 million to a "compassionate fund" which will make partial insurance payouts to CommInsure customers in Queensland, Victoria and Tasmania who lack adequate flood cover.

CBA said the compassionate insurance fund was "a goodwill gesture by the bank" aimed at customers affected by the floods in the three states who are not covered by its CommInsure policy.   

The $50 million fund "will not cover all of the cost of damage" the bank said, though it "will provide some much needed financial assistance."

The payments are likely to cover around 70 per cent of the damage bill from riverine flooding.

The bank said it will contact affected insurance customers in the coming weeks.

The funds will come from "group" sources, not the policyholder funds of CommInsure.

CommInsure made an underwriting profit on general insurance of $7 million in the year to June 2010 and a net profit of $11 million, APRA data shows.

So, the bank's budget for the payouts for under-insured customers is roughly equal to five years' profit, or one and a half month's premium income on the general insurance business of CommInsure.

General insurance is a modest business for CommInsure. The bank put CommInsure's underlying profit at $299 million in the year to June 2010, down six per cent on the year before. Cash profit tax increased to $396 million driven by recovering markets.

CBA managing director Ralph Norris called for more effort by the industry to develop viable flood cover for customers.

"I think it's very important that the industry gets a common set of definitions," he said.

"One of the issues that has caused problems in this particular situation, and has done in the past, is the different definition that some companies have of what constitutes a flood.

"I'm very much of the view, because of this, that the industry should come to an agreement as to a standard definition of a flood."

The bank said it will also waive some fees and interest on loans to business customers in flood zones.