A flood claims pool that enables insurers to retain subsidised premiums and manage claims would be the most effective way to make flood cover available to high-risk properties, Allianz argues in its submission to the Natural Disaster Insurance Review.

Allianz says a claims pool would be more effective than an insurance pool that operates as a quasi-insurer. It says state and local governments that have allowed flood risk through planning decisions should fund the pool, which would top up the gap between subsidised premiums and the cost of claims.

The insurer opposes mandatory home insurance, flood cover and full replacement cover on home building policies. It says consumers should have choice in their risk management, and compulsory flood cover “would likely see some insurers withdraw from the home insurance market, reducing competition and economic efficiency”.

The 93% of homeowners with no flood risk should not be forced to pay higher premiums to subsidise the others, and if consumers are forced to insure for flood, the additional cost, even with subsidies, might mean some do not take out any home insurance at all, Allianz warns.

The insurer says it expects to offer flood cover in NSW by the end of this year, but flood mapping in other states is not “of sufficient quality and comprehensiveness to contemplate offering flood cover elsewhere in Australia at this stage”.

It estimates the cost of cover on a house insured for $350,000 in an extreme flood-risk area would be at least $7500 a year.

Allianz says state taxes on insurance should be removed to make insurance more affordable, noting that 32% of a home insurance policy in NSW is paid in tax.

It says under a claims pool arrangement, property-owners should make a financial contribution “that reflects their flood risk and also takes into account their capacity to pay”.

The state and local governments that fund the pool should make contributions based on their risk and which encourage mitigation.

Allianz says a flood insurance pool that collects premiums and manages claims would have to operate like an insurance business, with the associated costs. The claims pool it proposes would share risk management. It suggested thresholds above which the pool would share the claim cost plus caps on insurers’ payouts and says premiums should be aligned with the flood risk of the property and the sum insured.