A submission from the Financial Rights Legal Centre in Sydney says whichever model the Northern Australia Insurance Premiums Taskforce supports, benefits such as lower premiums should be made available to all Australians who face extreme risk.

NSW and southern Queensland have particularly high premiums and high levels of non-insurance, the centre says in its submission on the taskforce’s interim report.

It says access to a mutual insurer should be limited to consumers on lower incomes and those taking mitigation action, and the mutual should be regulated by the Australian Securities and Investments Commission.

“The key advantage a mutual option has over a government reinsurance pool is it will be easier to link eligibility for the scheme to mitigation efforts or affordability criteria than it will be to link mitigation under the reinsurance pool option,” the submission says.

The Actuaries Institute’s submission to the taskforce warns creating a mutual insurer may confuse consumers concerning coverage gaps, insurance contracts, policy distribution and claims management.

It says uncertainty is also created for insurers in pricing, distribution and settlement of losses, and the taskforce should look to New Zealand and the operation of the Earthquake Commission as an example.

The economic benefits of mutual funds are modest and mitigation should be an important component of reducing premiums, according to the institute.

“There are many complications involved in setting up a mutual insurance company, such as coverage gaps, interaction with commercial insurers [and] difficulties in determining premium.”

Government premium subsidies will distort the effectiveness of price signals, reducing incentives for mitigation, the submission says.

The institute agrees with the Australian Government Actuary, which found the insurance industry spends $1.40 on home and contents claims in north Queensland for every $1 of premium.

“Setting up a… reinsurance pool may have little impact on the overall cyclone premium, if not subsidised by government funding.”

The submission says modelling shows that over 10 years a $250 million annual investment in disaster mitigation could lift GDP by $6.5 billion, while a pool approach would reduce GDP over the same period.

The institute finds few benefits in the proposed pool for the market, insurers or policyholders, and “the potential challenges and issues clearly outweigh the benefits”.

The Insurance Council of Australia and National Insurance Brokers Association (NIBA) have declined to release their submissions until they are published by the taskforce.

“We have reservations about a mutual,” CEO Dallas Booth told insuranceNEWS.com.au. “In terms of a reinsurance pool, the terrorism pool works effectively and it may well be possible to design a cyclone pool operating in a similar manner.”

Mr Booth visited Cairns and Townsville last week, where pricing seems to have improved over the past six months.

“Brokers have real concerns about how the market is operating and whether it is operating on a rational pricing basis.”