The Financial System Inquiry’s interim report does not address its own terms of reference on risk-sharing, according to Deloitte.

It fails to set out a framework for risk allocation in the economy and does not develop a philosophy for dividing financial risk between individuals, insurers, communities and government, the professional services giant says.

“The interim report did not adequately address the market distortion that results from government compensation without recourse to people living in locations with a high risk of natural disaster, including fire, flood and cyclone.”

Deloitte says the report also needs a discussion on risk allocation in retirement across super, life, health and aged-care insurances, government safety nets and individual savings.

“There could be a push for increased competition in insurance, including through innovation, to try to bring down insurance premiums and create new products that cover uninsured risks.

“Another potential consequence is that governments mandate insurance.”

Responses to the inquiry’s interim report are due by August 26, and final recommendations will be delivered to Treasury in November.