State insurers should be made to meet the same prudential standards as their commercial counterparts, according to the Insurance Council of Australia (ICA).

Regulations that protect government-backed personal injury motor insurance schemes from competition should also be lifted, ICA says in a response to the Federal Government’s Competition Policy Review.

Treasurer Scott Morrison has voiced broad support for the review, which made 56 recommendations to raise competition in the economy and improve productivity.

The review does not specifically mention insurance, but it has called on all levels of government to commit to competition principles and to review competitive neutrality policy.

“If governments wish to be an insurer in these schemes, the principle of competitive neutrality provides that they should be subject to the same prudential and other regulatory requirements as general insurance companies,” ICA CEO Rob Whelan said.

“Competitive underwriting for these schemes will remove the financial risk to governments, taxpayers and future policyholders. It will drive innovation, and provide choice for consumers.”

About half the country’s workers’ compensation and motor accident personal injury schemes are state monopolies underwritten by governments.

“ICA welcomes [Mr Morrison’s] commitment to work with the states and territories to reach agreement on nationally consistent competition reforms, and hopes this issue will be seriously considered,” Mr Whelan said.

ICA also backs the Treasurer’s decision to consult further on the recommendation for an effects test to deal with abuses of market power.

Mr Morrison says the review has set “a new frontier for governments at all levels” to introduce reforms that will improve the nation’s living standards.

“Competition policy is one of the surest ways to lift long-term productivity growth and generate economic benefits that can be shared by everyone,” he said. “Increased productivity driven by a more efficient market will drive innovation, entrepreneurship and more productive investment.”