A Government-backed reinsurance pool or insurance mutual would provide only marginal premium relief – if any – for the north of Australia, the Insurance Council of Australia (ICA) says in a submission.

The Australian Competition and Consumer Commission has listed reinsurance pools, mutual insurers and direct subsidies as subjects for further consultation as part of its ongoing inquiry to improve insurance affordability in the region.

ICA has stuck to its insistence that disaster risk mitigation is the only answer and not “quick solutions” that could backfire.

“Quick solutions to pricing without addressing the underlying cause risks disincentivising community engagement in critically needed disaster mitigation, and therefore only delays the issue of insurance affordability to the near future,” the ICA submission says.

“The only means to effect lasting change to insurance affordability and accessibility…is by adopting a systematic approach to disaster risk reduction in which the measures interact to improve the resilience of communities, reduce the residual risk of disaster and ultimately improve insurance affordability.”

ICA supports the idea of direct subsidy only if the scheme is aimed at financially supporting private mitigation efforts.

It is against using subsidies to improve insurance affordability, calling such a potential move a “spurious solution” that would not address the root causes of the premium woes facing residents in the north.

“This approach only offers to temporarily alleviate the symptoms of high hazard exposure, without making any lasting improvements to affordability because the underlying risk remains unchanged,” ICA says.

“Further, direct subsidy also creates a moral hazard by disincentivising mitigation and therefore exacerbating the ongoing risk of disaster in northern Australia.”

On the issue of a reinsurance pool, ICA says past inquiries have found such a set-up to not be viable. Additionally, the US Government-backed flood scheme has shown that artificially lowering premiums made homeowners more complacent about the hazards facing their properties.

“Reinsurance pools are bad public policy, and once implemented they become extremely difficult for government to withdraw from,” ICA says.

“As soon as premiums are subsidised by a pool, homeowners are no longer motivated to invest in mitigation because the financial incentive of doing so has been removed.”