The Consumer Action Law Centre has rejected Productivity Commission claims that government subsidies on flood insurance will reduce consumers’ incentives to mitigate flood risk and create a barrier to climate change adaption.

The commission made its recommendations in its recent draft report, Barriers to Effective Climate Change.

The consumer group has instead called for the adoption of recommendations from the government-appointed Natural Disaster Insurance Review that would see discounting of insurance premiums in flood-prone areas through a government-sponsored reinsurance facility.

The Productivity Commission said that providing people with comprehensive information on flood risk and giving them “price signals” through insurance premiums is preferable to subsidies because it allows people to decide which risks they can bear themselves.

But Consumer Action Law Centre Policy and Campaigns Director Gerard Brody says this view is naïve, as decisions on taking up insurance are usually based on affordability, not risk judgements.

The Insurance Council of Australia has also rejected direct and indirect subsidies for insurance premiums in areas prone to natural disaster, saying they would distort the market and lead to higher premiums for property owners in low-risk areas.