Victoria must follow other states by introducing compulsory third party property insurance for taxi drivers, a new report says.

Many drivers in the state are unable to acquire insurance because they are deemed too risky by insurers, forcing them to pay unregulated “taxi clubs” for third party property cover that has “few if any benefits”, the Taxi Driver Legal Clinic claims.

Drivers covered by a taxi club often face a $1500 excess without third party cover, according to data compiled by the clinic between February and November last year and published by the Footscray Community Legal Centre.

Months and sometimes years after an accident, drivers have faced claims of up to $20,000 for vehicle repairs, the report says. Most are from non-English-speaking backgrounds and have had to file for bankruptcy when the taxi clubs paid nothing.

While taxi clubs do not technically provide insurance – operating under a similar model to a mutual fund – they have been targeted by the Australian Prudential Regulation Authority for illegally offering taxi owners and drivers comprehensive cover.

NSW introduced compulsory third party insurance for the taxi industry in 2007. Western Australia and the ACT have similar schemes.

Report author Lucie O’Brien says the industry needs urgent reform. Her report is part of a wide-ranging review of the industry for the Victorian Government by former Australian Competition and Consumer Commission chairman Allan Fels.

A draft report by Professor Fels in May recommended compulsory comprehensive third party cover for taxi permit-holders.

In its submission to the review, the Insurance Council of Australia supports mandatory third party property damage insurance. It says up to 70% of Victorian taxis do not carry it, leaving the cab drivers vulnerable to costly repairs and creating problems for ordinary uninsured drivers recovering costs from those at fault.