Local councils should help insurers pinpoint risks within their borders so premiums are priced accurately, a new report says.

Although insurers analyse claims patterns by postcode, this disregards different levels of risk across each area, according to the State of the Regions report by the Australian Local Government Association and consultant National Economics.

When pricing can be differentiated, it provides incentives for property-owners to build in low-risk areas using low-risk designs.

“Local government not only has the opportunity to negotiate with insurers for appropriate premiums, but it also faces the issue of how far its town and regional plans should be influenced by the insurability of properties,” the report says.

The issue has grown in importance with the increase in disaster risk.

The report, supported by JLT, asks who will pay for data collection on risk. It says there is a case for public provision and pooling of information in the case of extreme natural hazards.

The legal system must define its attitude to low probabilities, according to the report.

“There is potential for much waste of time and resources in legal cases in which owners of damaged properties sue local governments for failure to enforce, or even worse, for failure to enact regulations to minimise disaster damage.”

Population spread means smaller cyclones, floods and fires are moving into the natural disaster category, the report’s authors say.

They consider the use of building or site-use restrictions to reduce vulnerability, what this means for councils’ legal liability and what role insurance should play.

“As the memory of disaster recedes, there is a tendency to criticise controls imposed to reduce vulnerability as unnecessary regulation.”

It says mitigation can be costly and have limitations, such as when residents start to see flood-control dams as water storage for urban supply or irrigation.

National Economics ED Peter Brain says communities can take years to recover from major events and, as disasters occur more often, “some places may become uninsurable”.