The National Commission of Audit report released last week has plenty to say about reducing the role of government, and its comments on risk suggest there will be a tougher line on picking up the bill for disasters and an expectation that communities take on more responsibility.

There are recommendations about abolishing activities that cost taxpayers and which, it’s claimed, the private sector can do just as well. For the insurance sector this includes proposals to scrap the Australian Reinsurance Pool Corporation (ARPC), the Defence Service Homes Insurance Scheme and the Export Finance and Insurance Corporation (EFIC).

But the 430 pages of the Towards Responsible Government report also outline a philosophy on risk management.

“The community should not expect a risk-free life,” it says.

This overarching statement underlies many recommendations relating to welfare payments and support for business – but the commission also applies it to activities that will affect insurance.

The section on disaster relief talks of government payments and intervention discouraging individuals and business from accepting responsibility for managing their risk.

This suggests the insurance sector will get a more sympathetic ear to calls for mitigation and disaster prevention, particularly since the report notes the cost to the Commonwealth of catastrophe payouts.

Natural disaster relief has had a “significant impact on the budget due to major flooding events” since 2011.

“This large and volatile expenditure poses significant and ongoing risks to the budget”, and leads to duplication by the Commonwealth and the states and territories.

It says the Natural Disaster Relief and Recovery Arrangements should be replaced with grants to the states, paid in instalments, and the disaster recovery allowance to small businesses, farmers and employees should be abolished because it provides poor signals to employers to undertake better business and risk planning.

The commission says there are too many public service bodies and they are doing work the private sector can perform, such as insurance underwriting.

The commission says it’s important to recognise the risks the Government takes onto its balance sheet when it provides guarantees and loans, such as EFIC’s $3.3 billion of liabilities.

“Public information on the attendant risks accompanying these guarantees and loans is relatively poor,” it says, and the risk taken on by the Government may not be priced properly.

“Virtually all of Australia’s exports by volume and value take place without EFIC’s assistance and the support it provides mostly goes to a small number of large businesses.”

The ARPC can be abolished because “with continued recovery in terrorism insurance markets, there is scope for a gradual Commonwealth exit over the coming years”.

The Defence Service Homes Insurance Scheme and its advisory board should be scrapped, the report says.

“There is an established and competitive insurance market. There is no compelling rationale for continued government involvement in this area.”

The Insurance Council of Australia (ICA) says the Defence Service Homes Insurance Scheme is a matter for government, but it notes the home insurance market is highly competitive, with products available to cover defence homes.

It says the ARPC, established after the 2001 terrorist attacks on the US, was always intended as a temporary measure until reinsurance capacity returned.

“There is some evidence of a gradual return of capacity in this market, and once sufficient capacity exists the role of the ARPC could potentially be reconsidered,” a spokesman told insuranceNEWS.com.au.

The commission wants Comcare merged into the Department of Employment. 

Its “claims management function [should] be outsourced and private sector underwriting of Comcare’s workers’ compensation insurance scheme pursued”.

Although the commission does not give any rationale for the recommendation, it says the Commonwealth should consider quitting activities that are outside its core responsibilities.

ICA welcomes private underwriting of the scheme, with its spokesman noting the Government recently allowed all national employers to self-insure under Comcare.

“However, as smaller national employers may not be in a position to self-insure under the Comcare scheme, a privately underwritten national workers’ compensation scheme would support productivity, operational efficiencies and significant compliance savings for Australian employers that operates beyond the borders of a single state or territory jurisdiction.”

Insurers could work with the Government to design such a scheme, ICA says.

The report is the latest in a long line of government inquiries and reports to call for state insurance taxes and stamp duties to be dropped.

ICA notes the Henry tax review, the Productivity Commission report on climate change adaptation and the 2009 Victorian Bushfires Royal Commission all recommended removing the imposts. It says the taxes could be removed by 2015 if the state and federal governments worked to make it happen.

In a chapter ambitiously titled Reforming the Federation, the Audit Commission says states’ and territories’ ability to raise revenue should be matched more closely with their expenditure.

It says there is merit in re-examining the GST base. But the overall tax burden should not increase, so any changes to GST should be offset “by the elimination of other inefficient state taxes, including stamp duties and insurance taxes”.

Next week’s budget will give an indication of how far the Government will go in adopting the commission’s recommendations, which were delivered to Canberra in February and March but made public just last week, and have since drawn a plethora of protests.

Insurance could possibly be one sector to emerge a winner from the commission’s work.