At a national level, the Australian Government’s primary role in insurance is to regulate and oversee the insurance market. This oversight aims to ensure stability, fairness, and accessibility, particularly as climate-related risks place increasing pressure on insurance affordability and availability.

In addition to market regulation, the Federal Government plays an important role in understanding and communicating national-level risks, supporting industry stability, and learning from past disaster events.

These functions involve different policy choices, including regulating market conduct, intervening to stabilise markets, and, in some circumstances, absorbing or redistributing risk that would otherwise be borne by households or insurers.

One mechanism used by governments to support a stable insurance market is the establishment of reinsurance pools.

A reinsurance pool is a cooperative arrangement in which insurance companies share large and unpredictable risks. By spreading risk across multiple insurers, reinsurance pools enable coverage for hazards that would otherwise be too costly or risky for individual insurers to manage alone.

This approach contributes to the overall stability and resilience of the insurance industry and can improve affordability for policyholders. However, while reinsurance pools can support affordability and market participation, if not carefully designed, they can affect incentives for risk reduction and adaptation.

In 2022, the Australian Government established the Cyclone Reinsurance Pool (the cyclone pool), to reduce the costs of reinsurance for cyclone-related risks. By lowering reinsurance costs, the cyclone pool aims to make property insurance more affordable for households and small businesses in high‑ and medium‑risk cyclone-prone areas.

The cyclone pool covers losses caused by cyclonic winds, cyclone-related flooding, and storm surge across Northern Australia. It is estimated to cover 3.3 million households, 220,000 small businesses, and 140,000 residential strata and small commercial strata properties.

There is ongoing discussion about whether this model should be extended to hazards other than cyclones, particularly floods. Such discussions highlight trade‑offs between improving affordability and avoiding the long‑term locking‑in of development in high‑risk areas.

Other countries are also addressing insurance challenges linked to natural hazards through various forms of insurance pools. These arrangements often arise where private insurers are withdrawing cover or setting premiums that are unaffordable for many households.

International case studies from a 2025 report by FloodRE that highlights several common features of pools:

• participation is typically mandatory or automatically attached to property insurance, limiting the ability to opt out
• penetration rates are high, often exceeding 80%.
• most schemes include an element of solidarity, allowing risks to be distributed relatively evenly across insured parties.
• the level and form of government involvement in risk‑taking varies widely between countries.

The examples studied in the report (from France, New Zealand, Norway, Switzerland, and the United States) also illustrate different ways governments can intervene to maintain access to insurance while managing escalating climate risks.

These approaches also demonstrate that insurance pools involve distributional choices: this raises questions about equity: for instance, who pays for risk; who benefits from cross‑subsidisation?

Beyond market regulation, the Federal Government plays a key role in identifying and communicating climate-related risks, which has relevance for insurance.

In 2024, it released the first National Climate Risk Assessment, which was developed by the Australian Climate Service. This assessment provides a national evidence base for understanding climate risks and underpins the National Adaptation Plan released in September 2025.

Clear and accessible risk information is critical for adaptation, as insurance pricing and availability act as signals that influence decisions about building, rebuilding, retrofitting, or relocating.

Public inquiries into major disaster events are another important way governments influence insurance outcomes. These inquiries help identify systemic issues and drive reform across the insurance sector.

The 2024 Flood Inquiry report Flood Failure to Future Fairness examined insurers' responses to the 2022 flood events in eastern Australia.

The inquiry identified issues such as inconsistent decision-making, prolonged claim delays, and inadequate settlements, all of which caused significant distress and financial hardship for affected policy holders.

It also highlighted a lack of standardisation across insurers, with neighbouring properties received very different insurance rulings despite being affected by the same flood impacts.

The report presented 86 recommendations that would improve practices of the insurance sector. The Insurance Council of Australia responded by endorsing 78 of the 187 combined recommendations from this inquiry and a concurrent code review.

These findings highlight the role of governments in addressing maladaptation risks, such as moral hazard and unequal outcomes, through oversight and reform.

State and local governments do not have a direct role in insurance policies and premiums, but can play an important role in reducing risks and supporting householders and communities to plan for climate hazards.

Key responsibilities for state and local governments include hazard mapping and data provision, community education and awareness‑raising, mitigation activities such as building preparedness, and support for emergency services and volunteers (COAG 2011). Many of these responsibilities already sit with local councils, often with support from state governments.

These activities are especially important given the limited availability of insurance for certain hazards, such as damage caused by 'Actions of the Sea. In the absence of insurance cover, planning and risk reduction become even more critical.

• High‑quality and accessible hazard mapping helps identify the scale and timing of risks to individual properties, enabling owners to make informed decisions about risk management. Making this information readily accessible is essential, as property owners cannot respond to risks they do not understand.
• Sound land‑use planning and development controls also play a central role in reducing damage from coastal inundation, wave action, and erosion. Future losses can be reduced by measures such as development setbacks based on hazard mapping and building design requirements: for example, raised floor levels and deep pile foundations.