Flood insurance is an industry priority and the Insurance Council of Australia (ICA) is committed to finding a solution, according to its Executive Director Alan Mason.

Speaking at ICA’s Outlook Conference in Melbourne on Friday, Mr Mason said flood is becoming increasingly important with the impact of climate change. Based on a review of new developments in Australia, “the solution could mark a significant change in the way property risks are underwritten”.

Mr Mason says a recent hypothetical study into the impact of insurance on the economy after a major earthquake in Perth shows insurance provides a benefit to the economy of $2.5 billion in addition to the direct payment of claims.

Based on the assumption that 60% of homes are insured, the study shows the net value of the loss in national aggregate consumption would reduce from $8.9 billion without insurance to $6.4 billion with insurance.

“One of the greatest challenges to underwriting flood has been that the exposure of houses to flood risk differs significantly from one house to the next,” he said. “Even houses that are side by side may have a very different exposure depending on their proximity to water, the elevation of the land and the building structure.”

However, with satellite imagery, digital terrain mapping and GPS technology, Mr Mason says it’s now much easier to assess flood risk.

He says Australia is unique in regard to catastrophe reserves. “We do not have mechanisms here to create catastrophe reserves out of pre-tax earnings,” he said. “Nearly every other country in the world does.”

Agreeing that the HIH Royal Commission recommended the Federal Government adopt the cat reserves system, Mr Mason says nothing has been done in this area  – “but it should be”.