The Insurance Council of Australia (ICA) has called on the federal government to provide long-term funding for flood defences managed by local councils, saying more frequent and severe extreme weather is testing councils’ finances and contributing to insurance pressures in high‑risk communities. In a submission to the federal parliamentary inquiry into Local Government Funding and Fiscal Sustainability, the ICA says councils are responsible for land use planning, mitigation assets, and disaster recovery, but in many areas their revenue base has not kept pace with their exposure to natural hazards. The inquiry is assessing whether current funding arrangements allow local governments to manage climate and disaster risks, and how these settings influence the cost and availability of insurance in vulnerable regions. Insurers say the review may influence how risk is shared between the three levels of government, communities, and the private sector.
The ICA’s submission outlines four policy proposals it says would reduce flood risk and, over time, ease pressure on premiums in higher‑risk locations. First, the industry body is asking the Commonwealth to work with states and councils to streamline approvals and funding for mitigation projects. The ICA says more than 60 flood mitigation projects across 17 high‑risk catchments in New South Wales, Queensland, and Victoria have been identified but remain on hold because of delays in approvals, funding shortfalls, and limited technical and administrative capacity at council level.
Second, the ICA has proposed reshaping the Disaster Ready Fund into a rolling, indexed 10‑year program focused on major flood, cyclone, and other hazard infrastructure. It argues that giving priority to larger projects that directly reduce physical risk would have a clearer impact on insurance outcomes than many smaller or short‑term initiatives. Third, the council is seeking changes to Disaster Recovery Funding Arrangements to clarify roles between insurers and governments and to provide more consistent approaches to debris removal and clean‑up after large events. The industry says faster and more predictable public recovery funding can support smoother claims handling and reconstruction.
The fourth proposal is the creation of a dedicated Flood Defence Fund worth $30.15 billion over 10 years, jointly financed by the Commonwealth and the governments of Queensland, New South Wales, and Victoria. The fund would focus on mitigation projects in 24 priority east‑coast catchments, where about 1.2 million properties are considered at flood risk. Under the proposal, councils would be responsible for delivering or coordinating many of the projects. According to the ICA, physical mitigation that changes the likelihood or severity of flooding can reduce the flood component of insurance premiums by lowering expected claims costs, particularly in communities subject to repeated riverine or flash flooding.
ICA deputy CEO Kylie Macfarlane said local governments sit at the centre of planning and recovery arrangements for natural hazards. “Local councils are on the frontline of Australia's worsening natural disaster challenge. They play a critical role in land use planning, and disaster preparedness and recovery, but the financial, regulatory, and resource constraints they face are significant and growing,” Macfarlane said.
Macfarlane said flood risk is heavily concentrated in certain parts of the housing market and that many of the most exposed households do not have flood cover. “There are around 242,000 homes with the highest flood risk in Australia, and more than 186,000 of them are not insured for flood, making them among the most vulnerable in our community. Stronger investment in flood defences, better land use planning, and a more coordinated approach to disaster recovery will help reduce risk, support councils, and over time ease pressure on insurance premiums,” Macfarlane said. The ICA is scheduled to appear before the parliamentary committee on May 1 and is also planning to discuss the proposals at a roundtable in St George.
The funding push comes after the Australian Prudential Regulation Authority (APRA) released its Insurance Climate Vulnerability Assessment (ICVA) in March, a stress test that explores how more severe extreme weather could affect general insurers and their customers. The ICVA is not intended as a forecast but models scenarios in which hazard frequency and severity increase. The ICA says the risks described in APRA’s work align with trends already emerging in claims, exposure data, and reinsurance costs and point to higher long‑term losses in areas with severe or extreme risk.
Industry analysis cited by the ICA indicates that while the number of properties in the highest‑risk categories is small relative to the national total, the cost burden associated with them is disproportionate. Modelling by Aon suggests that 25% of the cost of repairing or rebuilding flood‑damaged properties is concentrated in 11% of the most at‑risk properties. This concentration has prompted debate about whether mitigation, buy‑backs, or planning changes are more appropriate tools in some locations. The ICA has warned that, without changes to planning, mitigation, and funding settings, governments and insurers are likely to continue spending large sums rebuilding the same homes in flood‑prone areas, which may limit scope to invest in housing and infrastructure in lower‑risk locations.
Following APRA’s assessment, insurers are renewing calls for a more coordinated national approach to extreme weather risk. Alongside the proposed Flood Defence Fund, the ICA is advocating for greater investment in mitigation projects and the creation of a national hazard database covering key perils, accessible to governments, households, businesses, and financial institutions. The industry body is also seeking reforms to state and territory taxes on insurance, particularly in higher‑risk regions, and changes to land use planning rules to limit new development in locations where hazard risk is already elevated.
