The Australian Parliament has passed amendments to ensure up to $200 million a year in disaster funding focuses "solely on mitigating the impacts of natural disasters", the Federal Government says.

The Disaster Ready Fund (DRF) was confirmed in the October budget and passed into law in the House of Representatives on Wednesday.

Emergency Management Minister Murray Watt says by better preparing for natural disasters "we can protect lives and livelihoods, and lower damage bills from floods, fires and cyclones".

Insurers have welcomed the fund but some have pointed out that ultimately a "multi-billion dollar" investment is required to make up for years of neglect.

“We will always stand shoulder to shoulder with communities when disasters hit, by providing the necessary support to help them respond and recover,” Mr Watt said.

“But we must also prepare better for the next disasters that hit.

“The DRF was confirmed in last month’s budget, with up to $1 billion made available over the next five years for important disaster mitigation projects.

“We also know that the most effective way to bring down insurance premiums is to better safeguard properties from the impacts of natural disasters.

“These amendments transform the former Government’s failed Emergency Response Fund into a dedicated ongoing source of funding for natural disaster resilience and risk reduction initiatives."

Mr Watt says the fund will provide up to $200 million per year to invest in mitigation projects like flood levees, cyclone shelters, fire breaks and evacuation centres around Australia.

“We’ve already started extensive consultation with state, territory and local governments and as well as with industry around what projects we can focus on in the first tranche of funding," he said.

“Eligibility criteria will be released in the new year.”

Funding for natural disaster recovery efforts will also continue through other sources, including through Commonwealth and State Government Disaster Recovery Funding Arrangements.

This year more than $3 billion has been paid out in disaster relief payments by the Australian Government.