The Australian Competition and Consumer Commission (ACCC) has made two key proposals to directly tackle immediate insurance affordability worries in northern Australia, and they come down to actions that governments are likely to be reluctant to take.

Firstly, the ACCC Northern Australia Insurance Inquiry Final Report says WA, the NT and Queensland should abolish stamp duties on home, contents and strata, or at least rebase the levies and direct some of the revenues to help low-income consumers or fund mitigation.

Secondly, it says if governments want to intervene, they should do so through direct subsidies based on premium level and income eligibility, rather than through reinsurance pools or other options.

The first proposal has long been supported by the insurance industry, which has campaigned for the removal of insurance taxes in all states and territories, excluding the ACT, which abolished them in 2016.

The issue is particularly critical in the north, where high premiums mean percentage-based duties added on top create a heavy burden that makes it more likely people will decide against buying insurance.

“We agree the burden of stamp duties is falling more heavily on consumers exposed to greater natural disasters and other risks and support the idea of reforms to remove or re-base state and territory stamp duties,” Insurance Council of Australia CEO Andrew Hall says.

“This has the potential to immediately relieve pricing pressure for all consumers in northern Australia.”

The ACCC first proposed removing state and territory taxes in its first interim report to the Federal Treasurer in 2018, but it’s a matter for those governments – and they have been reluctant to forgo revenues.

The direct subsidy suggestion is a new recommendation, but was outlined in the second interim report, which weighed options to target affordability and availability as the Townsville flooding in early 2019 reignited calls for a reinsurance pool despite previous inquiries rejecting the idea.

The ACCC acknowledges there are calls for intervention, and governments may be inclined to spend money to support policy objectives in developing northern Australia.

But the report’s tone suggests the ACCC is not particularly keen to recommend any intervention, and it’s more a case of subsidies being the least-worst option if the Government feels it must do something.

Communities in northern Queensland, including Townsville, continue to push for a reinsurance pool, while insurers mostly want Government money spent on mitigation.

“We investigated the relative merits of measures including government reinsurance pools, government insurers, direct subsidies, mitigation programs and licence conditions,” the ACCC says in looking at actions to deliver immediate results.

“Direct subsidies have the greatest potential to work in a targeted way to relieve some of the acute affordability and cost of living pressures facing consumers in higher risk areas at a low cost and more effectively than other measures.”

Reinsurance pools are mainly used where there’s market failure and that’s not the case in northern Australia, the ACCC argues, despite pressure from northern communities who say the oppositive.

The insurance industry broadly has shown even less enthusiasm for direct premium subsidies than reinsurance pools, arguing subsidies can mask risk signals.

“This approach only offers to temporarily alleviate the symptoms of high hazard exposure, without making any lasting improvements to affordability because the underlying risk remains unchanged,” ICA says in a submission during the inquiry.

The ACCC says large-scale mitigation projects are more relevant to flooding, and while property-level mitigation is a more effective way to address cyclone risk, it’s not always recognised by insurers.

“While we support appropriate public investment in mitigation to protect people and their assets, we consider its potential to significantly reduce insurance premiums can be limited,” it says.

The ACCC Final Report makes 38 recommendations in total to improve the provision of insurance in northern Australia, comprising 11 new proposals and 27 brought through from the interim reports.

Whatever their merits, most are equally applicable for consideration for Australia as a whole, and include measures to improve household mitigation, greater support and clarity for consumers, and improved land-use planning and building codes.

Brokers remain critical of the ACCC for continuing to target broker commissions, while the regulator also holds to its view that the Government should consider a compulsory national home cover comparison website, despite industry opposition.

The ACCC says markets in the north are not working as well as they could be, while recognising there’s no changing the extreme weather realities that afflict the region, and that there are genuine reasons for the high cost of insurance.

“The main driver of higher premiums in northern Australia is the higher natural peril risks,” the ACCC says.

To what degree urgent affordability issues are tackled by governments and what happens next will depend on the politics.

The full report is available here.