An inflatable, portable water park purchased to strengthen youth relations with local police is gathering dust in a storage shed because no-one will insure it.

The inflatable obstacle course was bought for $65,000 after communities in the western Victorian towns of Stawell and Ararat worked with Blue Light Victoria to raise the money for it.

"I thought the hardest thing would be raising the funds," said Sergeant Shane Allgood, who volunteers with Blue Light Victoria's Yang branch.

Blue Light is a charity that runs grassroots programs for young people, led by volunteer police officers.

Sergeant Allgood said the inflatable obstacle course was bought at the request of local children.

He said Blue Light saw it an opportunity for young people in the town to get trained as lifeguards and find further employment.

"We were always aware that insurance would be expensive, but we didn't think we wouldn't be able to get it, and now we're in the position where we just can't get anyone to even give us a quote," he said.

Sergeant Allgood's plan was to take the inflatable obstacle course to the many lakes between Speed and Lake Bolac for rural families and schools to enjoy.

Ararat insurance broker David Hosking is helping Sergeant Allgood source a policy, but despite them providing a comprehensive and detailed risk assessment to insurers, it's been a blanket no.

Mr Hosking said they were so desperate to find coverage that they approached unauthorised foreign insurers, which carried less legal protection for consumers because they are not covered under Australian law.

Imbalance in damages awarded

Mr Hosking said the struggle reflected a wider problem affecting the entire tourism industry.

"[Insurers] no longer look at an individual risk, they just rule out a whole asset class like caravan parks, pubs or farms," he said.

Mr Hosking said an increase in severe weather events and a subsequent spike in property damage had contributed to insurers' reluctance to cover leisure operators for public liability.

Over the past 20 years, he said he has seen an increased tendency for courts to award financial damages to minor "vexatious" claims when tourism and leisure operators were not at fault.

He said insurance companies often settled minor claims outside of court to avoid legal fees and costs associated with contesting claims, which negatively impacted his clients' claims history and ability to renew their policy.

A spokesperson for the Insurance Council of Australia said that 2023 data from the Australian Prudential Regulation Authority (APRA) showed a 5.5 percent average annual increase in bodily injury claims since 2013, contributing to premium pressures.

They said APRA's data also showed an increase in public liability insurance premiums since the start of 2017.

"Claims inflation, fuelled by the rising costs of lawsuits and medical care related to injuries, are significant factors in public liability premium increases," they said.

An 'essential service'

Mr Hosking said while governments spruik the importance of the tourism industry, they don't do enough to ensure the sector remains viable.

He also warned that the difficulty finding insurance could affect other parts of the financial industry, because any asset that had a loan on it needed to be insured.

"So multiply that across not just houses but buildings, industrial, commercial, the whole lot, you have the whole thing grinding to a halt."

The ABC understands two Victorian waters parks, one at Lake Mulwala and another in Healesville, closed in recent years because of difficulty with insurance.

Mr Hosking isn't optimistic about Sergeant Allgood's chances of getting the inflatable water park insured.

Meanwhile, Sergeant Allgood says they are about two months away from selling the inflatable to recoup costs and buy something that the community can use.

"Nowadays everything seems to be too [risky] for insurance companies to even participate in giving a quote," he said.