© Provided by ABC Business Experts say there shouldn't be further development in extremely flood-prone areas, such as parts of the Hawkesbury-Nepean river basin. (ABC News: Brendan Esposito)

Thousands of the people enduring the heartbreaking sight of their homes sinking beneath a rising brown tide across the east of NSW are doing so knowing they don't have insurance coverage.

It's devastating enough for so many to watch a lifetime of possessions sink beneath the floodwaters, but doubly so for those who aren't sure how they can afford to replace even the necessities of modern life.

The reason so many are uninsured is either that their insurer won't offer flood protection at all, or that it is prohibitively expensive, with residential premiums of up to $30,000 a year being cited.

"If you live in a very high-risk area where your entire house could be flooded on a regular event then, yes, it's probably likely that's what you'd pay," acknowledged Insurance Council of Australia chief executive Andrew Hall on RN Breakfast.

It may sound unfair, but it's the way insurance is meant to work in a market economy.

Unlike, say, public health insurance through Medicare, where everyone contributes according to their means through taxation and then receives the same coverage regardless of their health risks, such as pre-existing conditions, property insurance is an entirely private affair.

Insurance actuaries pore over historical claims, flood and bushfire risk maps, climate information, crime data and much more to calculate a risk rating for every property applying for insurance.To use an extremely simplified example, if your home is subject to flooding every five years and the average damage bill from that is $150,000 then the insurer would need to charge roughly $30,000 a year just to cover that risk.

To lower premiums below that amount would mean that home owners whose properties are not subject to flooding risks would be paying more to subsidise the insurance of those who are.

In a competitive, private market, any insurers who did this would quickly lose business from those low-risk customers and be stuck with high-risk customers whose premiums would then have to rise anyway.

In other words, the only way to get cheaper premiums for high-risk areas — whether they be susceptible to flood, fire or storm — would be for the government to be provide socialised home insurance or compel the private companies to all do so.

'A certain insanity' in development

What a $30,000 annual insurance bill is telling us is not necessarily that we need socialised home and contents insurance, rather that an awful lot of housing has been built where it probably shouldn't have been, or hasn't been built in a way to suit its location.

"We've now got more than a hundred years of data, we really understand where land floods in this country, and we need to be doing more in ensuring that data is available and governments are making the right land planning decisions," Mr Hall argued.

"One of the problems we've got in this country is that we've allowed housing developments to occur in areas that are at risk of high flood.

"I think we need to have a national conversation around where development is permitted and the fact that a lot of developments have occurred in areas that face flooding, one-in-50-year floods."

This isn't just the insurance industry deflecting flak or talking it's book.

State Emergency Service planner and former deputy commissioner Chas Keys has .

"We are putting thousands and thousands of people on flood plains between Penrith and downstream of Windsor in the Valley of south creek and the valley of the Hawkesbury proper," he said.

"Now flood plains are bound to flood, they are designed by nature to flood, and we are aiming to double the population of the Hawkesbury-Nepean over certain years, to me there is a certain insanity in that."

There are 70,000 residents currently on the floodplain and the state government has plans that would potentially see up to 130,000 more move into the area by 2050.

"That's a really silly idea," Professor James Pittock, a waterways expert from ANU's Climate Change Institute, told ABC News.

"I would argue that the best approach is to prevent development on the flood plains … use that land for agriculture, and recreation and nature conservation. But don't put more houses there."

Buyer should be warned, not beware

In an ideal world, such flood prone areas would be completely barred from development.

But in a city where the typical house price is already more than $1 million, it's almost inevitable that those on lower and middle incomes seeking somewhere to live may find themselves pushed to the city's more marginal land.

Certainly, the NSW government's planning advice to councils in its Floodplain Development Manual errs on the side of more development, not less.

"The policy recognises the benefits of use, occupation and development of flood-prone land," is one of its first stated principles.

"Flood-prone land is a valuable resource that should not be sterilised by unnecessarily precluding its development."

The onus is on local governments to determine what is appropriate development given the flooding risk of a particular location.

One problem is, though, that local governments rely on property rates for their revenue. Rezoning land from agricultural to residential or commercial use increases its value and the annual rates they can collect.

Another is the level of influence property developers still appear to have on many councils.

In short, most of the pressures push towards developing flood-prone land rather than leaving it for lower risk uses such as nature reserves, parks and agriculture.

The homes in designated flood-prone areas are supposed to be designed to mitigate the risk, such as with higher minimum floor heights.

Again, though, the mitigation measures required are based on more typical flooding events, "flood planning levels" (FPLs), not rarer extreme floods of the kind much of NSW is currently experiencing.

The type of flooding that may become much more common if some of the climate change modelling proves correct.

At the very least, you would think future residents should be forewarned of any flooding risk.

But this isn't guaranteed.

Planning certificates issued by local government must disclose if the property is subject to flood planning controls, but do not need to disclose that properties not subject to FPLs may still be subject to flooding during rarer major flood events, like the current one.

So there could be many thousands of residents whose homes are not designed to cope with flooding and who are completely unaware of any flood risk until an unusually large flooding event inundates them, or until they try and insure their home and find out that they can't afford the premium because the insurer is aware of a risk they didn't know existed.