Opposition Leader Peter Dutton has threatened to force divestment in the insurance market as premium costs spiral – but the industry says it won’t help consumers because coverage issues are caused by rising risks, not a lack of competition.

In an interview with Sky News, Mr Dutton was asked: “What’s the Coalition plan to reduce the cost of insurance?”

The Coalition leader acknowledged the impact of reinsurance and state taxes on premiums, and the need for disaster mitigation, before adding that “we need competition”.

“We need depth in the insurance pool and we need to make sure that we’re not being ripped off by insurance companies,” he said.

“As we’ve done with the supermarkets, where we have threatened divestment if consumers are being ripped off, similarly, in the insurance market, we will intervene to make sure consumers get a fair go.

“Because at the moment, people are paying too much for their insurance and what’s resulting is that people aren’t taking out insurance. 

“So, that moral hazard is created for a number of reasons and people just simply can’t afford to insure the car or their home at the moment.”

The Insurance Council of Australia has responded by pointing out there are more than 30 companies offering home and motor cover, insurance is one of the most regulated industries in the country, and state and territory governments collect more tax on insurance products than insurers make in profit.

As for premium rises, CEO Andrew Hall says the industry is well aware of the impacts inflation and extreme weather are having on the price of cover.

The only “sustainable way” to address insurance affordability is to reduce or remove risks, he says.

“I wish it was as simple as divestiture,” he told the ABC. “There is not a silver bullet here for this problem.”

He says the market is “very competitive” and insurance issues facing those with high flood risk do not stem from a lack of competition. Instead, rising risk is the issue.

“As the risks increase, the number of insurers with the capital available to cover those risks decreases. To normalise flood insurance for people in high-risk flood zones, we are going to need to find a way of spreading that cost across the community more broadly.”

Mr Hall flags examples of flood pools in the US and UK, and says this “challenging conversation” is under way with politicians.

He also notes that RACQ Insurance, without a diversified portfolio and offering only home and motor, “found it unsustainable and has had to put its book on the market”.

Former chair of the Australian Competition and Consumer Commission Allan Fels says while there may be a range of insurance players, “it is a very concentrated industry, which is on the whole detrimental to competition”.

He says market share is dominated by a handful of major players, offers are difficult to compare, loyalty taxes prevail, and insurers need to do a better job explaining premium rises to their customers.

He believes the divestiture power should be available but used rarely and with caution.

“It has mainly been presented by Mr Dutton as a possible threat if the sector acts uncompetitively,” he told insuranceNEWS.com.au.

“Fear of it is likely to have an effect on anti-competitive behaviour.  

“We should have a divestiture power, but it would need to have safeguards in place. A court would need to decide that there had been a serious breach of competition law, and that divestiture was the best course of action.”

National Insurance Brokers Association CEO Richard Klipin says there is “significant competition in the market” and brokers play a “critical role” helping clients back recover after disasters and addressing affordability concerns.

“Insurance brokers are on the front line, ensuring Australians get the coverage they need at a fair price. Now more than ever, their role is critical in navigating affordability challenges and assisting with risk mitigation,” he said.

NIBA also flags the “large impost” of taxes on insurance.

“One of the most effective ways to ease the cost burden on consumers is for state and federal insurance taxes and levies to be reassessed,” Mr Klipin said.

NIBA’s broker of the year for Victoria/Tasmania Abbie Wilson says Mr Dutton missed a trick last month by not engaging with brokers during a visit to fire-affected Halls Gap.

She says brokers were only included in a later session when he was not present.

“This was a missed opportunity for him to hear first-hand the incredible work being done by brokers and industry bodies advocating for real change,” she wrote on LinkedIn.

“Instead of proposing to break up major insurers, the first step should be listening to those on the ground. Insurance brokers deal daily with affordability concerns, claims processes and underinsurance.

“Breaking up insurers alone won’t solve the deeper issues.”