The Insurance Council of Australia (ICA) has submitted detailed feedback to the Productivity Commission’s interim report on “Creating a More Dynamic and Resilient Economy,” highlighting the need for broad-based reforms in both taxation and regulation.
Representing the majority of Australia’s general insurance market, the ICA’s submission addresses the sector’s unique sensitivities to policy changes and outlines recommendations for fostering industry resilience.
The ICA’s submission underscores the central role of general insurance in supporting Australia’s economic stability, noting that insurance arrangements underpin a wide range of personal and commercial activities.
The council stated that the industry’s ability to provide this safety net is directly affected by the prevailing tax and regulatory environment.
“General insurance has a critical role in the economy, insulating individuals and businesses from the financial impact of loss or damage to their insured assets,” it said.
The submission emphasised that taxation and regulation decisions have immediate consequences for both insurers and their customers.
The ICA called for a comprehensive review of insurance-related taxes, arguing that the current system imposes multiple levies on policyholders.
In addition to the GST, insurance premiums in most states are subject to stamp duties, with further levies applied in New South Wales and Tasmania for emergency or fire services.
The submission highlighted that these state-based taxes can add between 9% and 40% to the cost of insurance, a burden that often surpasses insurer profits.
In the 2024–25 financial year, state governments collected $8.9 billion from insurance taxes, exceeding the industry’s total profits by $1.6 billion, according to Australian Prudential Regulation Authority (APRA) figures.
The ICA also raised concerns about the proposed net cash flow tax (NCFT), warning that it could introduce additional costs and administrative complexity for insurers.
The submission pointed out that insurance profitability is cyclical, with periods of high claims followed by lower claims years.
The ICA argued that the NCFT would not account for these fluctuations and could limit insurers’ capacity to invest during profitable periods.
The ICA expressed support for a reduction in the corporate tax rate to 20% for all businesses, including large insurers.
According to the council, such a move would enable insurers to allocate more capital to investments and risk management, ultimately benefiting policyholders through more affordable premiums.
The submission addressed the growing regulatory complexity facing insurers, who must comply with requirements from multiple agencies, including the Australian Securities and Investments Commission (ASIC), the Australian Competition and Consumer Commission (ACCC), APRA, and the Australian Financial Complaints Authority (AFCA).
The ICA advocated for greater coordination among these bodies and recommended that the ACCC become a permanent member of the Council of Financial Regulators (CFR) to ensure competition issues are considered in regulatory reforms.
The ICA also suggested a review of the regulatory changes implemented after the Hayne Royal Commission, noting that overlapping and duplicative requirements have increased operational costs for insurers and, by extension, for consumers.
The ICA’s submission is part of a broader five-point strategy responding to the Productivity Commission’s interim findings.
This strategy addresses not only tax and regulatory reform but also climate adaptation, digital transformation, workforce flexibility, and healthcare investment.
The ICA reiterated its position against the NCFT and called for reforms that consider the interconnected nature of tax and regulatory systems.
“The insurance industry welcomes the Productivity Commission’s focus on improved regulatory efficiency and changes to enhance Australia’s tax system,” it stated.
The council emphasised the importance of holistic reform to avoid unintended consequences and to support the productive capacity of the sector.
The ICA concluded by expressing its intention to continue engaging with the commission as it finalises its recommendations, aiming to ensure that future reforms strengthen both the insurance industry and the broader Australian economy.
