The Insurance Council of Australia (ICA) will propose a premium rebate scheme exclusively for properties at high risk of flood when it submits its response to the Natural Disaster Insurance Review (NDIR) later this week.

Under ICA’s plan, the rebate for the 135,000 homes at high or extreme risk of riverine flooding would be funded out of the $4.6 billion that is currently collected each year by state governments from their taxes on insurance policies.

“The money pool is actually already there – it’s just how you allocate it,” CEO Rob Whelan told a seminar in Sydney last week that examined the review panel’s options paper.

A key plank in the proposal is that additional funds from the $4.6 billion are also set aside for appropriate risk mitigation programs to be put in place to reduce the flood risk that these properties pose over time, with a view to the market being able to eventually provide cover for them at reasonable premiums.

“The industry sees this as perhaps the best way of eradicating the problem rather than just band-aiding it,” Mr Whelan told the joint ICA-Institute of Actuaries seminar.

He says mandatory flood cover, as is being proposed by the NDIR as one of three options, could drive up costs and reduce market competition while doing nothing to lessen the flood risk faced by many homes.

“It doesn’t deal, from our point of view, with the real problem,” he said. “It gives no incentive into the marketplace to mitigate the existing risk levels, and it also gives no incentive to stop the growth of at-risk properties.”

Along with the premium rebate proposal, Mr Whelan says a “dynamic market-based solution” would result in adequate flood cover being made available for all other Australian households.

He says component parts of the market-based solution are better flood maps and data, targeted flood mitigation and better land-use planning, which would enable more insurers to offer flood cover more widely.

“This leads to overall lower risk levels and increases the number of insurers coming into the marketplace, driving up competition, lowering risk levels, and therefore lowering the premiums in the marketplace, increasing the overall level of affordable flood cover as a consequence.”

Mr Whelan says that for the 93% of properties not at flood risk, flood cover is already becoming more widely available, with 54% of household policies currently offering some kind of riverine flood cover, up from 3% in 2006.

He says that with some 90% of catchment areas expected to be mapped into ICA’s National Flood Insurance Database by 2012, the availability of flood cover should rise to around 85% of all household policies by the end of 2012.

“Cover is available and will increasingly be available going forward,” he said.