Many options have been floated and no recommendations yet finalised as the ICA-commissioned review on affordability and availability continues, but a discussion paper released last week makes some things clear.

Calls for greater government involvement are escalating as a result of the current hard market and the ball is really in the industry’s court if it wants to avoid intervention pathways.

The discussion paper, which focuses on commercial lines, and SME issues in particular, notes those affected by affordability or availability problems often propose government intervention in the private insurance market as a response.

“The underlying approach being suggested in this paper for SMEs is essentially that insurers, other interested parties and experts in each market segment collaborate to devise workable risk management and insurance solutions,” reviewer John Trowbridge says.

“There is no suggestion in this report that government intervention should be sought by insurers or by business interests before all other avenues have been thoroughly explored.”

The paper produced by former insurance executive and regulator Mr Trowbridge in collaboration with economist Michael Blythe, includes 16 approaches for discussion, with five classified as awareness options, eight as insurance industry options, and the remainder involving government.

Unlike recent reports from the Australian Competition and Consumer Commission and Australian Small Business and Family Enterprise Ombudsman, this one doesn’t take aim at broker commissions as an affordability solution.

The report says experience shows SME customers are not willing to pay fees, and abolition of commissions could adversely affect access and availability of advice for those needing assistance in markets where there are few insurers offering cover.

But it notes “full and explicit disclosures” of broker commissions and charges would allow clearer debate on what might constitute conflicted remuneration when the Hayne-inspired review takes place next year.

Industry options to tackle cover problems include creating underwriting consortia involving at least two insurers underwriting one or more difficult market segments.

Another alternative for spreading the risk could see agencies establishing co-insurance underwriting or binding authority with two or more insurers. The review also flags group captives and discretionary mutuals, profession or industry association led initiatives and broker specialisation.

The potential for some insurance industry-wide support, taking into account the public interest and the industry’s social licence, is also floated as an option.

The government-related options highlight that every inquiry and review of insurance costs and affordability over the last decade has recommended the abolition of state government duties on premiums, but they remain everywhere except the ACT.

The review also proposes collaboration with governments to reduce regulatory or legislative barriers to the mitigation of risks that are adversely influencing affordability and availability.

“Some risks can be regarded as uninsurable as a result of government licensing or legislative requirements,” it says. “They are the risks for which businesses or professions are obliged to seek insurance but where no insurer is willing to underwrite it at all or else only at unattainable prices.”

Option 16, described as government involvement for economic benefit, is seen as last resort intervention.

Such a response would be justified when there is a clear failure by private markets to offer appropriate cover at affordable premiums, the benefits of intervention outweigh costs and non-government means are unable to resolve market failures or gaps in an equally effective manner.

The release of the discussion paper comes after the Government announced it would provide a $10 billion guarantee for a reinsurance pool aimed at northern Australian cyclone-related risks, which will take effect from July next year.

Mr Trowbridge says it can be inferred that insurance against flood damage not associated with cyclones and insurance against bushfire risk will not receive government financial support, at least in the foreseeable future.

Submissions on a Treasury consultation document on the design of the cyclone pool are due by June 18, which is the same date by which feedback is due on the ICA discussion paper and its 16 options.

“At the heart of many of the options is the proposition that the combined efforts of the interested parties, working together, can improve both availability and affordability in many areas of insurance if there is a will to do so,” Mr Trowbridge says in the executive summary.

“The interested parties are principally insurers, underwriting agencies, brokers, industry and professional associations and, in some circumstances, governments (commonwealth and state).”

Insurers have historically mostly opposed the creation of a cyclone pool for Northern Australia, making numerous submissions questioning the merits in recent years.

Recent events have shown that if insurers don’t deliver answers to problems, governments can decide to fill the void in ways not necessarily favoured by the industry.

Some different approaches and ways of thinking might be needed in the future.