Insurance companies have been told to develop a standard flood clause, in plain English, and give all households access to insurance, or face government intervention on the issue.
As thousands of businesses and families excluded from flood coverage by insurance policies face financial ruin, the Queensland Treasurer, Andrew Fraser, said the industry could face a competing government insurance scheme if it did not act.
The contentious issue - which reached an impasse in 2008 - formed part of discussions the federal Treasurer, Wayne Swan, and Assistant Treasurer, Bill Shorten, and Mr Fraser have held with the Insurance Council of Australia.
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Mr Shorten said: ''My advice to the insurance industry was that either they would push it, they would need to come to the party with further reform, working with consumers and the ACCC, or politics will fill the vacuum. The community has an appetite now to get this right once and for all.''
The shadow treasurer, Joe Hockey, said yesterday whole towns subject to flooding had been unable to buy insurance and it ''raises a big issue'' when the community expected shopkeepers to continue operating on the main street.
Mr Fraser said the insurance council was opposed to a national government insurance scheme, but ''unless they adequately respond to this issue then the people who price risk for a living, then that's a risk that they should price''.
He said the government wants a standardised flood clause inserted into all policies, and flood cover offered to all policyholders, albeit priced according to the tailored risk.
''The argument that it's impractical or unable to be priced, or priced economically, is answered by the fact you have a major insurer, Suncorp in Queensland, already doing it,'' said Mr Fraser.
The federal and state governments would seek to help the industry tailor flood policies by providing improved data mapping to insurance companies, Mr Shorten said.
A private sector solution was the best option, but governments were determined to see the issue finally resolved, he said.
The federal government would also look to the findings of the Queensland flood inquiry as it sought to toughen consumer protections for flood insurance, Mr Shorten said.
The Prime Minister, Julia Gillard, said last night that the federal government may introduce a flood levy, and would make significant spending cuts, to rebuild Queensland and keep its election pledge to bring the budget to surplus in 2012-13.
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