Insurance premiums.

There is a certain inevitability about the coming rise in insurance premiums for home and contents cover.

The Victorian and South Australian fires will cost many millions of dollars, but this cost will be dwarfed by the settlements for the floods in Queensland.

In property loss Victoria will need insurance compensation for well over a thousand homes, a huge number of motor vehicles and stock and infrastructure associated with four hundred and fifty thousand hectares of burnt out farmland.

Two thirds of Queensland went under water in one of the greatest floods ever recorded, and that means flood damage to homes running into the hundreds of thousands, spread from the coast inland - and including many areas not previously known to flood.

Not many homes were actually destroyed, but the cost of replacing the contents damaged by two metres of water will be enormous. Consider what a day or so of muddy water in the average home will do to the contents. Basically, all carpets, furniture, electricals and Gyprock wall linings will need to be dumped - and replaced. Cars that have been inundated may be restored, but at a considerable cost.

Not all of this cost will be borne by local insurance companies. Major disasters such as this are spread by way of " reinsurance " - whereby the risk is contained by local insurance companies taking out their own insurance with overseas companies and thus spreading the risk on a world wide basis.

Despite this, February's trials by fire and flood will lower insurance company profits, cost them a mint of money - and surely result in a premium hike.

It couldn't come at a worse time. We are heading into a recession and many people are on the cusp of losing their jobs - and one of the first things that happen when money is short is a reduction in discretionary spending.

Even in relatively good times some people take the risk of going without home and contents insurance. We can expect a surge in lapsed insurance when the premiums fall due this year, and that means that when the next disaster happens a lot more people will have to rely on charity to survive.

This is one area where the government could help. Insurance premiums are bloated with add on costs such as the Goods and Services Tax ( GST ) and hefty fire brigade levies.

Basically, the people who insure are subsidizing those that don't - and a fairer distribution of risk would be for the government to waive the GST on insurance premiums - and accept the costs of providing the services of the fire brigades.

It would be a worthwhile inclusion in the proposed $ 42 billion stimulus package !