The Insurance Council of Australia (ICA) recommends holding fire on regulatory intervention regarding underinsurance and price comparison websites.

In a response to the Financial System Inquiry’s interim report, the council acknowledges community concern about underinsurance following total-loss catastrophe events.

But it says the case for direct intervention has not been made, and estimating the extent of underinsurance remains problematic.

Proposals to make total-replacement policies mandatory could have a major impact on general insurance markets, ICA warns.

“Policymakers should be cautious in recommending regulatory action in the absence of clear empirical evidence.”

ICA also recommends a hands-off approach to the development of price comparison websites.

Some submissions suggest comparators should be given access to insurance product information, or that they should be government-run.

But ICA says regardless of their “market virtues… the case for either regulatory intervention to facilitate [their] development or even government ownership of these tools is misplaced”.

Overseas experience suggests comparators can grow without government assistance, but they are not without problems. The UK Financial Conduct Authority says without appropriate regulation customers can be misled or dissuaded from buying the most appropriate products.

The challenge for governments is not whether regulation should promote comparators but the rules under which they operate.

ICA welcomes the interim report’s acceptance that general insurance is distinct from banking and other financial sectors. Recognising this uniqueness should set the direction for future policymaking, it says.