Greens supremo Bob Brown has called on the federal government to seriously consider a national flood insurance scheme in the mould of the United States, but sounded a note of caution over free riders who build houses in risky areas and then expect the state to bail them out.

The Senate scion told Crikey that he supported a national scheme in principle, potentially bankrolled by the mining super profits tax, to make sure policyholders with genuine grievances were properly covered.

“I would support it in principle…the obvious problems are that it needs to be coupled with planning laws which prevent people from making themselves a burden on such a scheme by constructing buildings where floods are likely to occur,” he said.

“We need to assess how a national scheme has worked in other countries with a view to it being implemented in Australia.”

Currently Australian policy holders suffer under a hodge-podge of uneven policies and payouts depending on their insurer and their state. Queensland’s biggest conglomerate, Suncorp, offers home and contents policies that guard against the inland or “riverine” floods that wreaked havoc last week. However, clients of Insurance Australia Group aren’t so lucky, with thousands of residents without appropriate protection facing the prospect of financial ruin.

Last week, Queensland Premier Anna Bligh declared she was open to a national funds pool, slamming the current patchwork system as inadequate as it became clear many of her citizens weren’t protected.

In the US, the 1968 National Flood Insurance Program, introduced in the wake of Hurricane Betsy, provides subsidised insurance to property owners and businesses, provided their communities have taken appropriate precautions to mitigate risk. US insurers — which don’t provide cover for flooding in their regular policies — act as administrative middlemen for taxpayer largesse, which costs the US Treasury about $200 million a year.

The program was forced to payout hundreds of millions of dollars after Hurricane Katrina, and is now being reviewed by the Obama Administration. Similar safeguards would need to be put in place in Australia to guard against a budget blowout, Brown said.

“There’s an analogy with sea level rises — we need planning laws to ensure that people don’t end up paying everybody else’s premiums when storm surges damage property. There’s an onus on private enterprise as well as local and state governments to be clear where flood prone areas lie.”

While the US scheme is cross-subsidised by taxpayers, in New Zealand a similar scenario means a long-standing levy on policies covers the first $100,000 in damage to property covered by flooding and earthquakes. The fund currently stands at $20 billion.

Consumer lobbyists Choice backed Brown’s assessment, telling Crikey that a national scheme should be one option looked at by the government, provided that people and businesses could be dissuaded from building in flood prone areas.

“It should be something put on the table when all ideas are being considered,” spokesperson Inga Just told Crikey.

“But there’s been problems with the program in the US, where populations have moved into flood prone areas…there was a lot of money spent after Katrina.”

The scheme would need to be coupled with community and federally-coordinated flood management plans to ensure its success. A national definition of what constitutes an flood and an explanation of that definition’s key terms was now a pressing concern, Just said.

The US system is often the subject of heated debate, with local communities often locked in disputes with administrators over flood maps with the Federal Emergency Management Agency. If a local community is designated to be flood prone, then building standards and precautionary measures can increase costs.

However, the local insurance industry has an aversion to such a nationalised program going ahead, fearing that residents and business would abandon the fat premiums paid to insurers for existing flood coverage, safe in the knowledge that the taxpayer would pick up the tab.

Paul Giles from the Insurance Council of Australia said that the industry had long-standing issues with a national scheme and strongly rejected its establishment in Australia.

“We’ve maintained for years that we don’t see the need for the nationalisation of insurance. We have an extremely competitive in Australia…we have a market that has demonstrated that demand for certain products. That shows that competition works.”

“Some of the models that have been discussed have an additional financial impost and this will add to the cost.

“It’s not really government’s role to pay for people to rebuild,” he added.