Australia is unlikely to ever set up a flood reinsurance pool in Australia similar to Britain’s Flood Re, a seminar hosted by Risk Frontiers in Sydney was told last week.

Such a reinsurance pool in Australia would have “critical vulnerabilities” due to the multiple levels of government and the need for political commitment over the long-term, Insurance Council of Australia (ICA) GM Policy, Risk and Disaster Planning and Acting CEO Karl Sullivan told the seminar.

“They only have to deal with one level of government in the UK.”

Mr Sullivan says the pool proposed for Australia by the Natural Disaster Insurance Review (NDIR) in 2011 would have delivered a good result if every single element had been implemented.

“The problem is that it requires massive discipline from the community and from policymakers that just does not exist,” he said. “Over time these things are eroded and the policy breaks down to a point where you end up in situations where more homes are built at greater risk in more risky areas.”

Flood Re, to be financed by a national levy, will be introduced next year in the UK to keep down the cost of cover for hundreds of thousands of flood-prone households.

Aon Benfield Analytics Asia Pacific COO Rade Musulin says the experience of the US Government’s flood and terrorism insurance pools are a “slippery slope that can lead to unintended consequences” such as massive deficits.

The former chairman of the NDIR, John Trowbridge, told the seminar one of the problems with government pools is the question of who must pay – insurers, the government, ratepayers or policyholders.

The disaster review tabled several possibilities, but “everywhere we looked everyone wanted to run away from the problem”. Another issue is that “the insurance industry runs a mile from government intervention”.

Risk Frontiers MD John McAneney says a review of international government schemes carried out by Risk Frontiers showed that many pool schemes in the US had met with financial difficulty. There were “lots of good things” about the National Flood Insurance Program in the US, but it had not resulted in stopping the number of homes being built on floodplains.