The recent US hurricanes have demonstrated the failings of taxpayer-funded flood insurance pools in providing catastrophe cover, Insurance Council of Australia CEO Rob Whelan says.

“I hope the global experience of insurance pools for extreme weather risks is being seen by our governments as the inadequate mechanism they are,” he told an insurance conference in Sydney.

Pools in the US are “running tens of billions of dollars in the red, fuelled by rampant inappropriate development”, yet are failing to provide adequate cover for most property owners, he says.

Texas and Florida have been hit hardest by hurricanes since late August, placing increased funding pressure on the US National Flood Insurance Program.

Mr Whelan also told the conference the Australian insurance industry faces challenges from disruption, lack of community trust and regulation.

“I’ve never seen regulators so active and assertive,” he said. “They’re putting the financial services sector under much greater scrutiny than ever before, and with it comes a level of activism.”

Mr Whelan says a royal commission into the financial sector is likely if there is a change of government at the next federal election, and insurance may be swept up in it for several years.

He says the industry is addressing trust issues and other challenges with initiatives such as the code of practice review and consultations through the Consumer Liaison Forum.

“Disruption finds its place where there are clear inadequacies from a customer perspective from a product or from service delivery,” he said.

“For any industry the danger point for major disruption exists where growth in industry profits intersects with declining customer satisfaction.”