Warren Entsch, the federal MP for the north Queensland seat of Leichhardt, has called on the Federal Government to launch a catastrophe insurance pool similar to the terrorism reinsurance pool to make premiums affordable for people living in flood-prone areas.

The terrorism pool “has worked very effectively”, Mr Entsch told insuranceNEWS.com.au. “The Treasurer just renewed it for three years. He pulled $400 million out of it and used it to try to build up a surplus he’s never going to get.”

Mr Entsch says the money could have been used instead as the basis of a catastrophe pool, and the rest could be funded through a levy that he concedes “might not be popular”.

The pool could be used to pick up “the first $500 million damages in a catastrophe”, he said. “It becomes like an excess.”

Mr Entsch says the insurance industry should also contribute to the pool, given that “these guys are doing exceptionally well”.

He accused the insurance industry of “gouging” after the 2011 floods in Queensland by adding highly priced flood insurance to existing policies.

“My home insurance used to be $1200. I recently got a quote for $7800, which included compulsory flood insurance.

“If a flood reached my property, the Cairns CBD would be 30 feet (9.1 metres) under water.”

Insurance Council of Australia (ICA) spokesman Campbell Fuller told insuranceNEWS.com.au individual risk is assessed as accurately as possible in flood-prone north Queensland.

“ICA does not favour a catastrophe pool,” he said. “We believe flood mitigation works are the best way to protect communities, in combination with improvements to town planning.”

He says some insurers have made flood cover compulsory, but it is optional with others.

John Devaney, a broker with Cairns-based Joe Vella Insurance Brokers, says there have been significant premium rises in north Queensland. But he says the region “has not been paying its way”.

“The brutal reality is that mathematical imperatives are in play,” he told insuranceNEWS.com.au. “Darwin has had one cyclone in 50 years, while our region has had several major cyclones in 30 years – two of those in the past six years.”

North Queensland’s relatively small population pushes up insurance losses, Mr Devaney says. Insurance claims from Cyclone Yasi in 2011 cost $1.4 billion while the Brisbane floods totalled $2.3 billion. But the population difference means the cost of claims per dwelling was $3178 for the floods compared to $12,229 for the cyclone.

Mr Devaney says the Federal Government could take some measures to reduce insurance costs. “Tax breaks may be needed to help retrofit houses [to make them more flood-resilient]”, he said.