The Australian Competition and Consumer Commission (ACCC) should be directed to inquire into insurance supply in bushfire-prone regions as part of an exploration of strategies to address potential market failure, a Senate committee has recommended in a report into lessons from the Black Summer catastrophe.

The proposed inquiry would examine pricing and availability, premium cost components, terms and conditions, the competitiveness of the market and barriers to entry or expansion.

Regulatory issues, the behaviour of market participants, financial risks posed by climate change and innovations to encourage resilience and mitigation spending should also be part of the ACCC inquiry, the committee’s final report says.

The recommendation expands on a proposal put forward in the interim report released in October last year. Since then, the Federal Government has announced a $10 billion guarantee for a reinsurance pool for cyclone risks in northern Australia.

The Senate committee report says the cyclone pool’s eventual effectiveness is “very much an open question” while it also highlights Flood Re in the UK and the US national Flood Insurance Programs as examples of intervention.

“The committee is of the view that a number of strategies are worth exploring in order to effectively address the potential for insurance market failure in bushfire prone regions,” it says.

These include improving mitigation, gaining a clear understanding of market structure, emerging risks and underinsurance, as well as undertaking a thorough examination of the risks and potential effectiveness of different models of government intervention.

Before considering the suitability of a reinsurance pool for bushfires, it would be useful to examine the distribution of fire risks among households and businesses, granularity of pricing, the degree to which mitigation is possible at household, firm or community level and the extent of coverage for the risk across Australia, the report says.

The committee says it’s concerned the cost of the “growing climate-induced failures of the insurance market” will increasingly be borne by taxpayers through measures such as the reinsurance pool or through a government underwritten insurer of last resort.

“In the committee’s view, insurance market failure should be addressed through increased expenditure on mitigation and resilience infrastructure to better address the risks that climate change and natural disasters pose to the community,” it says.

“The committee suggests that much of this expenditure will need to be government funded, perhaps through a dedicated investment stream under the Future Fund, or a combination of on and off-budget mechanisms.”

The inquiry into lessons to be learned following the Black Summer bushfires was referred to the Finance and Public Administration References Committee in February last year.

The fires have also been examined by the Royal Commission into National Natural Disaster Arrangements and various state-based inquiries.

The Senate committee’s final report makes 16 recommendations around issues such as recovery and mitigation funding, aerial firefighting and insurance.

Proposals include that the Federal Government use the Emergency Response Fund to increase mitigation and resilience investment in line with 2014 Productivity Commission report disaster funding recommendations.

In additional comments, Coalition Senators note the Government has committed to draw down two years’ worth of the $50 million annual allocation from the Emergency Response Fund. The Australian Greens recommend the Government urgently transition away from coal and gas.