The Productivity Commission’s draft report on climate change appears to dismiss the key recommendations of the Natural Disaster Insurance Review (NDIR), according to the three members of the review panel.

NDIR Chairman John Trowbridge, TAL Ltd CEO Jim Minto and leading plaintiff lawyer John Berrill have written a joint submission, as individuals, to the Productivity Commission Draft Report into Barriers to Effective Climate Change Adaptation, questioning why the report appears to reject much of their reasoning and recommendations.

They say the chapter dealing with insurance devotes considerable attention to flood insurance in a manner that “implicitly challenges and by inference appears to dismiss, the primary recommendations of the NDIR and the arguments that support those recommendations”.

Their submission says the commission may not have appreciated the full measure of the NDIR recommendations and the reasoning behind them. They say the underlying question to be answered is whether the Government should contribute to a solution to making flood insurance more affordable.

The commission’s draft report argues against premium subsidies, saying “governments should not subsidise premiums for household or business property insurance, whether directly or by underwriting risks. This would impose a barrier to effective adaptation to climate change.”

The panel members say that without premium discounts, affordability is a genuine problem for some homeowners who now have no incentive to mitigate their flood risk.

They say discounts with claim subsidies proposed by the NDIR would not compromise incentives if the discount system is well designed. Their inquiry was well aware of the need to avoid “perverse incentives” that discourage people from reducing their risk.

Mr Trowbridge told insuranceNEWS.com.au that flood cover to high-risk properties cannot be made available without some form of government involvement.

“There are people without flood cover who would like it but believe they cannot afford it,” he said.

“The affordability problem needs to be solved if flood cover is to be provided where it is needed and the flood risk is to be properly managed.”

The draft report recommends the Government should only require all household insurers to offer flood cover if it can be demonstrated that the benefits to the wider community will exceed the costs.

The NDIR members say cost-benefit concerns can be satisfied if the Government is prepared to review its total financial assistance during floods and redirect some of it towards insured homeowners.

While improved disclosure and information collection is supported, it will not solve the flood insurance problem and does not deal with affordability.

Their submission says the introduction of the standard flood definition and key facts statements are “minor” steps forward.

They also note that the Productivity Commission makes several references to Government-proposed reforms but not the NDIR recommendations.