The Australian Competition and Consumer Commission should monitor premiums and insurers need to provide greater pricing clarity, a Senate committee inquiry has recommended.

More action is also needed at government level on reducing risks as part of measures to improve affordability, the inquiry’s final report says.

“Insurance premiums cannot continue to rise unchecked and out of the reach of a growing number of people,” committee chair and Greens senator Mehreen Faruqi said.

“Reform is needed to address both climate-driven disasters and insurance to ensure the disaster insurance gap does not continue to grow.”

The Select Committee on the Impact of Climate Risk on Insurance Premiums and Availability held hearings in Canberra, Melbourne, Sydney, Brisbane and Ballina. Inquiry members also included Labor’s Tony Sheldon and Nita Green, and Liberal senators Andrew McLachlan and Dave Sharma.

The report, which includes eight recommendations and a ninth from Labor senators on strata, says transparency on premiums is crucial and a ministerial direction should be given to the ACCC to take on a monitoring role and publish quarterly reports.

“Given the heightened risk of price gouging in what is a national affordability crisis, the committee is of the view that independent oversight of premium pricing is required,” it says.

Insurers should be required to provide policyholders with a sufficient breakdown of premium costs, including details of changes in response to customer resilience and disaster mitigation measures, according to the inquiry.

“For most people in disaster-impacted communities and beyond, insurance is opaque, complicated and difficult to understand,” Senator Faruqi said. “At the same time, rises in premiums are not explained to the consumer, making it impossible to understand the rationale for jumps in price or what measures to take to counter the rising cost.”

The report proposes a publicly accessible national risk map and database covering all natural disasters, action on land use and planning, and that the federal government pursue abolition of insurance taxes through the Housing and Homelessness Ministerial Council and other councils.

The committee recommends “that the Australian government increase the Disaster Ready Fund to $400 million per annum for investment in disaster mitigation and resilience measures”.

Additional comments from the Labor senators say this recommendation is already being delivered, with the government allocating $200 million a year for five years, matched by state and territory government spending on projects.

The report proposes Treasury expand the cyclone reinsurance pool to all natural disasters, acting on lessons from the current pool and incorporating incentives for insurers to invest in mitigation and resilience.

The proposal is opposed by the Liberal members, while Labor members note feedback, including from the Productivity Commission, about potential unintended consequences of the pool, and the mixed premium benefits reported by the ACCC to date from the cyclone scheme.

The committee is also divided on a recommendation for Treasury to develop options for a levy on coal and gas extraction companies that “would be invested in disaster mitigation and resilience measures, and the cost of rising insurance”.

Liberals oppose the levy. Labor senators say, in principle, securing funding from fossil fuel producers to support policyholders has merit, but they cannot endorse such a significant taxation system change when it is not supported by modelling or evidence of consequences. 

The Labor senators additionally recommended that state and territory governments review governance in strata schemes to ensure best practices that protect consumers and support greater transparency and accountability for residents. They say the federal government should consider the adequacy of the insurance disclosure regime for strata managers and brokers. 

The Insurance Council of Australia says it will engage with members on the recommendations, with the report adding to information about the correlation between climate risk and insurance affordability and availability.

“As also outlined in the House economic committee’s report into the 2022 floods, there are common policy recommendations for how governments, communities and insurers can work together to improve our resilience to extreme weather risk,” CEO Andrew Hall said.

More than 50 submissions were provided to the inquiry, which was launched in May.

The report is available here.