The big question on everyone’s lips this week as they sank knee deep in floodwaters across the country was, “Am I covered for this?”

Flood insurance in Australia isn’t simple, and many property-owners don’t realise the serious gaps in many insurance policies until it’s too late.

Over the past few years some companies have included flood cover in various ways – Suncorp and NRMA Insurance are examples – so that today any given residential street has people who do have flood insurance while their neighbours don’t.

In some recent high-profile natural catastrophes insurers have decided a flood was really storm damage and have paid out accordingly. But in cases where such consideration isn’t forthcoming, the industry’s reputation often takes a battering.

Last week’s floods have led to 45 local government areas across NSW and Queensland being declared natural disaster zones. How those affected are treated by their insurers will depend very much on who they are insured with.

While many countries provide flood cover as a standard feature of their policies, there are plenty of countries which don’t. In the UK, for example, insurers have been providing flood cover under a 2008 agreement with the government that it will spend considerable sums on flood mitigation in high-risk areas.

However, the new cash-strapped coalition government has now withdrawn more than £200 million ($320.6 million) from flood defence funding, leading insurers to threaten to withdraw flood cover.

Jardine Lloyd Thompson Partner for European Real Estate Bill Gloyn says reinsurers need to be convinced adequate prevention measures are being taken by local and national government before they will agree to cover.

“That does mean an acceptable level of investment in new protection as well as maintenance of existing defences,” he told insuranceNEWS.com.au.

He says that prior to the UK Government’s withdrawal of funding, research had shown the British flood cover system was “one of the best in the world”.

“If it ain’t broke – don’t interfere with it,” he told insuranceNEWS.com.au.

If the UK insurers do pull out of flood insurance in high-risk areas, one option tipped as worthy of consideration is a reinsurance pool similar in form to Pool Re – the pool set up in the UK when insurers withdrew from covering property against terrorism risks.

A similar terrorism pool also operates in Australia.

“It may well be that the only other option that can deliver widespread insurance will be a government-controlled pool,” Mr Gloyn told insuranceNEWS.com.au.

But he says a flood pool is not a popular option with the UK Government – any more than the terrorism pool concept was.

“Only when it was made plain to them the market had totally failed did they agree to stand as the reinsurer of last resort with Pool Re, which is a mutual formed by the majority of the UK insurance market.”

Mr Gloyn says it wouldn’t be too difficult to amend the legislation and include flood in that pool.

“It would potentially provide a solution. The prospect of no cover being available – with just about all property-owners, domestic and commercial, having a contractual obligation to be insured against flood – cannot be contemplated,” Mr Gloyn said.

There are other examples of working flood schemes which support private insurers’ efforts. In the US, the National Flood Insurance Program has been in place since 1968. It offers cover for homeowners, renters and business-owners if their community participates in mitigation schemes.

France set up a natural disaster compensation system in 1982 following catastrophic floods the previous winter.

People with property and vehicle insurance policies which cover for fire, water damage or theft are automatically covered for damage caused by flooding, landslides, drought or earthquakes.

So could the solution to Australia’s troublesome flood cover issue be a pool arrangement with the Federal Government acting – as it does generally now – as the backstop?

Allianz GM of Corporate Affairs Nicholas Schofield says creating a pool involving government contributions is one solution worthy of greater consideration.

He told insuranceNEWS.com.au that this is one of the only ways comprehensive flood cover could be provided to the entire Australian market.

He says there was some work done on breaching the gap several years ago, with the Insurance Council of Australia approaching the Government to discuss the concept of a pool arrangement.

“A pool arrangement would be one option where we would collect a premium and the Government would contribute as well, but we would need to keep it affordable,” Mr Schofield said.

With the industry being prevented by the competition regulator from being able to even formally define what a flood actually is, and with many insurers declining to get involved in flood cover, the pool concept could well be worthy of more serious consideration.