Government-run catastrophe insurance schemes do not reduce risks, according to Macquarie University’s Risk Frontiers.

The unit compiled a report in collaboration with Aon Benfield and the University of Colorado, and has concluded that risk reduction “has rarely been an explicit goal of government pools, which have usually risen in the face of perceived market failures of the private market, often following a significant natural disaster”.

The report comes as a Federal Government-appointed taskforce investigates alternatives to private insurance in north Queensland, where property insurance premiums have increased significantly over the past few years to reflect the region’s cyclone and flood risks.

Risk Frontiers has used research material compiled in 2013 to ascertain the importance of insurance in encouraging adaptation to climate change-related extreme weather events.

The research has now been adapted to examine the success of government-sponsored insurance pools in reducing risks.

Using data on government schemes in the US, Europe and New Zealand, Risk Frontiers concludes insurers can encourage risk-reduction behaviours by charging property owners a premium that truly reflects the risk.

In theory this should encourage local governments to demand better land-use planning and resilient building practices.

But this is not the case for the government insurance schemes examined. It says political aspects have the potential to make government insurance projects counterproductive.

“An ongoing contentious issue in the US has been the degree of political influence exerted to keep premiums low and have policyholders in low-risk and high-risk areas charged similar rates,” the study says.

“In the absence of adequate regulation, the lack of financial incentives for mitigation encourages development in high-risk areas.”

Risk Frontiers says “political will and well-informed debate” would help voluntary and public insurance-providers work together in reducing risk and increasing resilience in the face of future catastrophes.

“The paradox… is that any such well-designed public catastrophe insurance program will end up looking much like an equivalent competitive private market. There are no easy answers.”