The Federal Government should give less money to states and territories following disasters and provide more funding for mitigation, the Productivity Commission says.

The commission’s report on natural disaster funding arrangements, tabled in Parliament today, says states need to shoulder a greater share of recovery costs “to sharpen incentives to manage, mitigate and insure against these risks”.

It proposes a new funding mechanism for recovery and reconstruction and says federal mitigation funding should increase to $200 million a year, matched by the states.

Justice Minister Michael Keenan will ask the states for talks on the findings, and says the Government will respond to the report after these consultations.

The commission says the reform imperative is greatest in Queensland, where high disaster losses reflect greater risk but also inadequate risk management, bad land planning and underinsurance.

It warns its funding reform model must be adopted in its entirety, because “cherry-picking” will skew the balance between mitigation and recovery.

Local and state governments should partner with insurers so information is shared to improve planning decisions and prioritise mitigation spending.

Evaluations of large mitigation projects that significantly reduce property damage risk should include an analysis of how insurance premiums can drop.

Insurance markets for natural disaster risks are generally working well, although the commission has seen evidence of postcode pricing.

It calls for insurance taxes to be phased out.

The report says insurers must improve information to consumers about natural disaster risk, and “this could include information on natural hazards in their area, indicative rebuilding costs and examples of household-level mitigation options”.

Where people are not insuring or underinsuring because of affordability issues, the commission says better information is unlikely to help.

The Government may need to consider structural mitigation such as levees, or relocation.

Government insurance subsidies are “overwhelmingly ineffective”, the report says.

Accumulated natural disaster insurance losses have been greatest in NSW, mostly from hail and storms, followed by Queensland, mostly for floods and cyclones.

The report says natural disasters are a part of the Australian landscape that since 2009 have claimed more than 200 lives, destroyed 2670 houses and damaged a further 7680.