The financial system inquiry should examine the regulatory burden on the insurance sector and its impact on affordability and ability to write risk, the Insurance Council of Australia (ICA) says.

In its submission to the inquiry, the council calls for less restrictive prudential requirements and significant tax reform, and says governments should look at mitigation rather than policy measures if they want to improve affordability.

ICA says higher capital requirements and administration costs imposed on insurers since the global financial crisis are raising costs.

“The insurance sector has the potential to bear more risk in the economy but the current regulatory and prudential settings are preventing insurers from taking on this risk or new risk,” CEO Rob Whelan says.

The submission says the inquiry could recommend a detailed examination of how regulatory creep and prudential stability are constraining insurance markets.

It cites overlap between the Australian Securities and Investments Commission and Australian Prudential Regulation Authority that forces insurers to comply with separate regulations administered by two agencies on the same issues, such as fit-and-proper tests.

It urges the inquiry to consider the impact of stamp duties and fire services levies on insurance.

ICA also calls for a “level playing field” with aggregators, requiring them to disclose commissions and payments.

It says the inquiry can articulate a lasting and durable framework for policymakers and establish conditions under which insurance markets operate effectively and efficiently.