The government should examine creation of a federal flood reinsurance pool to tackle unique complexities associated with the peril, the Australian Consumers Insurance Lobby (ACIL) says. 

In a submission to the parliamentary inquiry into insurers’ responses to last year's major floods, ACIL says the idea should be assessed during, or following, the 2025 review of the Cyclone Reinsurance Pool to leverage insights from that initiative. 

“We strongly recommend that the government initiates a comprehensive inquiry to evaluate the viability,” ACIL said.  

“All Australians should have access to affordable and comprehensive insurance coverage. These devastating flood events, characterised by widespread inundation, property damage, and displacement of residents, brought to the forefront the pressing need for comprehensive reforms.” 

Floods in Queensland and NSW last year resulted in record insured losses and claims.  

ACIL says insurers “found themselves ill-prepared for an event of this scale,” and there were significant delays in processing claims due to critical shortages of skilled tradespeople, hydrologists, and assessors. 

“The 2022 major floods underscored the vulnerabilities within the current flood insurance landscape, highlighting the necessity for proactive measures to enhance preparedness, response, and recovery efforts,” the submission said. 

Australia faces a “recurring and escalating challenge” in managing the financial consequences of floods, and it says last year exposed areas of market failure.  

“In response to similar challenges in cyclone-prone regions, the Federal Government established the Cyclone Reinsurance Pool,” it said, adding that premiums collected could be used to fund mitigation efforts and cross-subsidise consumers in high risk areas.  

ACIL also says buying back properties situated in flood-prone areas is a proactive way to reduce claims, and lists raising homes and flood levees as positive measures. 

But the Federal Government’s $200 million per year towards mitigation “is insufficient to address the scale of the challenge,” it says, and it is “imperative that Australia allocates significantly higher resources to mitigate flood risks comprehensively”. 

ACIL supports designating floodplains as off-limits for development and building codes with flood-resistant construction standards. 

“It is imperative that both the Federal Government and insurers recognise the emergent market failure within the realm of flood insurance,” ACIL said.  

In a submission from the National Insurance Brokers Association, CEO Phil Kewin says uninsurability has potential to exacerbate inequality. 

“The paradox of insurance is that those who are most impacted by natural perils, i.e. low socioeconomic households, are least likely to be able to afford to protect themselves from the effects of such events,” he said. 

Another submission, from Independent Federal Member for Indi Helen Haines, made eight recommendations, including that the government legislate standard insurance contract definitions, and that insurers be required to inform customers when they believe they may be underinsured and detail how customers can achieve full cover.

She also wants insurers to be required to disclose a breakdown of insurance costs to policyholders, for example for each type of natural disaster risk. 

More submissions will be uploaded in coming weeks. See the submissions here.