State governments are to blame for much of Australia’s underinsurance problem, according to Insurance Council of Australia (ICA) Executive Director Alan Mason. He told last week’s Canberra conference that taxation and levels of insurance protection are directly related, and reducing tax has a positive effect.

He said the benefit of reduced taxes on underinsurance was demonstrated by last year’s audit of insurers in WA following the scrapping of the state’s fire services levy. It found that as premiums reduced, people increased their level of insurance cover.

Mr Mason attacked the Victorian Government’s plan to tax companies which self-insure or have a deductible over $10,000, saying it reveals a “complete misunderstanding of the reason for deductibles which reflect a company’s desire to manage it’s own risk”.

The Victorian Treasury has proposed the bill because it sees deductibles as tax avoidance – a bit of a weird jump in logic because Victoria insists the levy isn’t a tax at all. Mr   Mason said “ICA, insurers and large corporates in Victoria are strongly urging the Government to withdraw the bill before it has a damaging effect on Victoria’s image as a sound place for investment”.