The Federal Government should establish a temporary reinsurance flood pool to provide incentives for flood mapping and mitigation, the Actuaries Institute says.

Funding under the Natural Disaster Relief and Recovery Arrangements should give preference to projects that encourage risk management, it has told the Productivity Commission inquiry into natural catastrophe funding.

The institute also wants a risk management framework that considers climate change.

Its submission says mitigation takes years to implement but could be funded through a flood pool that would wind up over 10 or 15 years. Premiums would only be subsidised if risk management is undertaken.

While insurance prices send a signal on risk, the information does not always go to those in the best position to act, such as developers and councils, so it is important homeowners have information about hazards at the time of purchase.

The institute wants a ban on development in areas of unacceptable risk. It says although personal losses are highlighted in disasters, there is also significant damage to public assets that causes economic losses, such as from tourism and loss of public revenue.

Insurance covers about 70-80% of losses for most events but for the 2011 Queensland and NSW floods it accounted for only 36-40%, leaving governments to carry the remainder.

“Insurance is becoming unaffordable for some parts of the community, especially those living in areas at high risk of natural perils such as flood and cyclone and to a lesser extent bushfire,” the submission says.

Meanwhile, Federal Treasury’s submission says since 2009 average home contents premiums have increased at twice the rate of the consumer price index, while home building premiums have risen by six times.

It says subsidies from government pools could remove price signals on risk, meaning development in high-risk areas continues.

Subsidies could also crowd out private sector insurers and reduce competition, it warns.