State and territory governments collected $3.2 billion in taxes from insurance policyholders in 2003/04 – an increase of 51% over the past five years.

That’s one of the more unnerving findings of a new analysis by the Centre for International Economics (CIE), which was commissioned by the Insurance Council of Australia to measure the industry’s impact on the national economy.

The report says insurance has contributed $14.6 billion of GDP to the Australian economy. But it warns insurance is price-sensitive, and the high tax impost on policyholders is a significant cause of underinsurance and non-insurance.

“The economic analysis shows that taxes on insurance are relatively inefficient and that reducing these taxes or replacing them with almost any of the others that governments have at their disposal today would lead to large gains in economic welfare.”

The report also finds Australian households, governments and businesses have $47.6 billion worth of current and future claims against insurers’ reserves.