The Federal Government’s Natural Disaster Insurance Review’s issues paper released last week makes it clear that a solution isn’t going to be focused only on the insurance industry.

“Although the insurance industry is working to make flood cover more widely available, the affordability problem in flood-prone areas will not be solved by the insurance industry on its own,” review panel Chairman John Trowbridge says in the paper.

To insure or not to insure is still the question, but the panel says the industry has three options to help deal with any future natural disasters.

Mr Trowbridge says improving access to flood cover for home insurance has emerged as the key issue facing the panel.

But despite an increase in the number of disputes associated with the January floods and Cyclone Yasi, the panel is still considering a “do nothing” approach as one of the three options for tackling flood insurance issues.

The issues paper identifies the status quo as one of the “main possibilities”, under which insurers would choose for themselves to offer full, partial or no flood cover for home insurance, giving customers the option of choosing a company offering a policy that best meets their needs.

The panel also suggests the possibility of providing automatic flood cover under home policies similar to that offered for other disasters such as bushfire and storms – a solution based on traditional insurance concepts that the pooled premiums of many help to make covering the risks of a few affordable.

The third option would see insurers offering automatic flood cover with a clause for customers to opt out.

Mr Trowbridge says that if flood cover was included automatically, all disputes about whether water damage was caused by flood or storm would be eliminated.

“Flood cover would then be in place at the same level as fire and storm cover for every insured home,” he said.

“However, some homeowners would face significant increases in insurance premiums under such a model unless these homeowners were given some form of assistance to enable them to continue to insure their homes.”

The panel believes this option would also benefit individuals and communities in the recovery process following a disaster.

Mr Trowbridge says insurance cover for these kinds of events would encourage flood mitigation by the homeowner and reduce the “impost on charitable donors or taxpayers”.

The issues paper also looks at ways to subsidise the increases in premium rates that homeowners in high-risk areas could face, and suggests funding discounts would be needed to encourage flood mitigation.

The review panel is continuing to take submissions, with the consultation process now open until July 14.