Water Exclusion Clause 2025: Insurance Impacts & Tips | Cockatoo

Australia’s climate is unpredictable, and 2025 has already seen a spike in severe weather events. As insurance claims climb, the water exclusion clause has become a hot topic for both homeowners and businesses. But what exactly does this clause mean for your financial security—and how can you ensure you’re protected?

What Is a Water Exclusion Clause?

A water exclusion clause is a provision in insurance policies that limits or excludes coverage for damage caused by certain types of water ingress. This might include flooding, storm surge, or gradual seepage. While designed to keep premiums manageable for insurers, it can leave policyholders vulnerable if they’re unaware of the details.

• Common Exclusions: Most standard policies exclude flood damage, defined as water escaping from a river, lake, or the sea.
• Storm Water vs. Flood: Insurers often differentiate between rainwater entering through roofs/windows (usually covered) and floodwater rising from the ground (typically excluded).
• Rising Groundwater: Damage from groundwater seepage or slow leaks is rarely covered.

Given the frequency of extreme weather, understanding these distinctions is more important than ever.

2025 Policy Updates: How the Rules Are Changing

The past year has seen record-breaking rainfall and flash floods across eastern Australia. In response, several insurers have updated their water exclusion clauses in 2025:

• Broader Definitions: Policies now more clearly define what constitutes a flood versus stormwater, aiming to reduce disputes but sometimes broadening exclusions.
• New Disclosure Requirements: Under ASIC guidelines, insurers must provide clearer explanations of water exclusions at the point of sale and renewal.
• Optional Flood Cover: Some providers offer opt-in flood cover at a premium, especially in high-risk zones.
• Disaster Declarations: In declared disaster areas, some government-backed policies may offer limited exceptions, but these are not guaranteed and vary by state.

For example, after the 2024 Lismore floods, hundreds of claims were denied due to water exclusion clauses. This prompted a Senate inquiry and led to increased regulatory scrutiny in 2025, with calls for standardized wording and fairer outcomes for consumers.

Real-World Risks and How to Protect Yourself

Consider the case of a Brisbane family whose home was inundated after torrential rain in February 2025. Their insurer classified the damage as ‘flood’—not covered by their policy’s water exclusion clause—leaving them $120,000 out of pocket. Such stories are increasingly common, particularly in flood-prone areas.

To avoid these pitfalls:

• Read Your PDS: The Product Disclosure Statement (PDS) outlines exactly what water damage is (and isn’t) covered. Don’t skim it—ask your insurer for clarification if needed.
• Consider Flood Cover: If you live near waterways or in a low-lying area, opting for flood cover—even at a higher premium—can be a wise investment.
• Mitigate Your Risk: Simple measures like maintaining gutters, waterproofing, and landscaping to redirect water can lower your risk and may improve your insurability.
• Review Annually: Update your cover as your circumstances or local flood maps change. What was low-risk five years ago may not be today.

It’s also worth noting that some banks and mortgage lenders now require proof of adequate water-related cover before approving loans in high-risk zones, reflecting the growing impact of climate events on property values and lending criteria.

Conclusion: Don’t Let a Clause Sink Your Finances

In 2025, water exclusion clauses are under more scrutiny than ever, but they remain a standard part of most Australian insurance policies. Staying informed—and proactive—can mean the difference between a denied claim and a secure recovery. Review your policy, ask the right questions, and consider comprehensive cover if you’re at risk. Don’t wait for the next storm to discover what your insurance really covers.