The Victorian Bushfires Royal Commission put insurance under the microscope last week as it considered the central issues of taxes and underinsurance.

The burden of underinsurance and non-insurance is a key focus for the three commissioners after it was revealed 13% of building owners affected by the fires had no insurance.

Joe Monforte, director of tax and intergovernmental financial relations for the Victorian Department of Treasury and Finance, told the commission he saw little evidence that removing insurance taxes would necessarily lead to improved insurance coverage.

But Insurance Council of Australia counsel Wendy Harris queried the existence of the fire services levy (FSL) in Victoria given the absence of levies on other “public goods” such as ambulance, hospital and police services.

She said many activities of the fire services are not relevant to the protection of buildings and contents, and also drew a link between the FSL and underinsurance – a contention supported by Richard Tooth, a principal of policy consulting firm LECG.

Mr Monforte admitted underinsurance “is a concern” and said an ongoing state government review of fire services funding would evaluate the best option for Victoria.

Dr Tooth said his firm’s research found the removal of the FSL would encourage a further 26,000 owner-occupied households in Victoria to insure their assets.

Consumer lawyer Denis Nelthorpe told the commission insurers could help lower underinsurance rates if more providers offered full replacement policies.

“Two major insurers offer replacement policies,” the West Heidelberg Community Legal Centre lawyer told the commission. “I think it’s a pity that more don’t.”

The commission is due to release a final report in July.