The Australian Small Business and Family Enterprise Ombudsman has warned insurance market failure is causing a national crisis that needs to be addressed, and has taken calls for government action to a new level.

Debate on direct government involvement in the market has tended to focus on reinsurance pools or mutuals to address affordability issues in northern Australia.

The ombudsman, Kate Carnell, takes a wider approach. She says the Australian Reinsurance Pool Corporation (ARPC) should be expanded to provide reinsurance for all natural disasters for commercial property insurance, while separate action is also needed on public liability and professional indemnity issues.

The Australian Competition and Consumer Commission (ACCC) has already looked at northern Australia’s ability to pay affordable premiums, focusing on home and strata in cyclone-prone areas as part of a three-year inquiry, and its final report is with the Federal Government.

The small business ombudsman’s report encompasses northern issues and also reflects market shifts after last summer’s devastating bushfires, as many small businesses deemed high risk struggle with renewals.

Ms Carnell says climate change impacts are likely to increase over time, affecting a greater number of businesses, and governments need to become more involved in finding solutions.

“We are going to end up with more climate events, not fewer. So, are we planning to tell everybody in the bushfire-affected areas, or north Queensland, to move?

“I don’t think that’s going to be a terribly politically palatable approach. The fact is, it is a problem. It needs to be fixed.”

The inquiry spoke with reinsurers in preparing the report, and Ms Carnell says they have concerns about Australian risk, and touched base with the ACCC and the ARPC.

The recent Royal Commission into National Natural Disaster Arrangements also explored some related issues, recommending state, territory and local government sconsider natural disaster risk when making land-use planning decisions for new developments.

The ombudsman goes further and says where land is released with known issues that are not disclosed to a purchaser or otherwise not apparent, the relevant authority should carry the liability for the issue in perpetuity.

Public liability and professional indemnity are identified as key issues, with premiums soaring amid a more litigious environment and after high profile issues such as building sector failings.

The ombudsman suggests following New Zealand’s approach and introducing statutory caps and says the Federal Government, in co-ordination with the states and territories, should urgently progress a no-fault national insurance injury scheme (NIIS).

The scheme was recommended in a 2011 Productivity Commission report, which also proposed the National Disability Insurance Scheme.

“The risk environment for public liability litigation can only change through government intervention and the current framework of fault-based injury compensation creates uncontrollable risks for insurers and small businesses,” Ms Carnell says. “It’s clear we need a civil liability framework that actually works.”

In the case of professional indemnity, the ombudsman says where there is only one or no insurers left in the market, the Government should provide a scheme of last resort for small business.

The report proposes expanding the Australian Financial Complaints Authority’s (AFCA) mandate so more small business policies are included, helping avoid costly litigation in areas such as liability.

Other recommendations include measures to increase transparency and to potentially drive competition, while it says documentation should set out policyholder mitigation options to reduce premiums.

The report calls for a ban on conflicted remuneration paid to brokers and greater clarity around commissions and fees, including detailing of government taxes and levies that are adding to costs.

Insurers should have to give 60 days’ notice of a renewal refusal, premium hike above 15% or changes in exclusions or excesses, with a current minimum 14 days “a manifestly inadequate timeframe” for small businesses to source alternative cover, it says.

Measures would see the consumer data right extended into the insurance market as a priority and insurtech developments facilitated.

Ms Carnell says the difficulties facing small businesses are not just the result of a typical cyclical upward market move, there are other factors at play that are creating more serious problems.

“There is market failure that will have extreme consequences for the Australian economy if left unaddressed,” she says.

“The recommendations in this report are designed to provide much needed clarity and certainty for small businesses, rebalance risks for insurers, and allow businesses access to the insurance products to protect themselves for when things go wrong.”