A government commission in Australia is advising Parliament against subsidizing flood insurance because suppressed premiums could impede adaptation to climate change.

The report comes as lawmakers are preparing to consider proposals this year requiring private insurers to widely expand access to flood policies, a move sparked by devastating floods last summer in Queensland and Victoria. Insurers generally omit water coverage in their current contracts.

The proposal also calls for insurers to offer discounts to low-income homeowners who decide to buy flood coverage. In return, the government would provide public reinsurance to cover cataclysmic damage suffered by private insurers during major floods.

The government sees the proposal as a way to expand access to flood insurance in a nation that can shift wildly between drought and floods. Extreme heat waves and intensifying precipitation are possible impacts of rising temperatures contributed to by greenhouse gas emissions.

But the report released yesterday by the Productivity Commission, an independent research board for the government, warns against proposals that tamper with insurance pricing and risk assessment.

If the government requires private insurers to provide coverage in vulnerable areas, and at discounted prices, that could encourage habitation in disaster-prone regions, discourage owners from strengthening their homes against damage and create new expenses for taxpayers, the report said.

"Governments should not subsidize premiums for household or business property insurance, whether directly or by underwriting risks," the report said. "This would impose a barrier to effective adaptation to climate change."

Drought, then floods

Meddling with the insurance market could also spur underwriters to buy more reinsurance as they face rising flood risk, a cost that could be passed along to consumers, the report said. On the other hand, it adds, some insurers may withdraw altogether from regions prone to flooding, reducing an element of competition that keeps rates affordable -- "thereby impeding effective adaptation to climate change."

Australia is particularly sensitive to climatic impacts because of its location low in the Southern Hemisphere, its long coastline and its relatively dry climate.

Climate change, according to some research, could affect drought differently across the vast landscape. The frequency of drought conditions, depending on future emissions levels, could diminish 20 percent in some areas and increase 80 percent in others by 2070. Wildfires and heat waves are also expected to become more common as Australia gets hotter and drier, and so are extreme precipitation events, even as average rainfall declines.

The nation is already familiar with lurching transitions between dry and wet. The flooding last year followed an intense drought that contributed to, for example, $1.1 billion in insured losses from wildfires in Victoria. Flooding in Queensland last summer caused about $2.4 billion in insurance damage.

The Productivity Commission also said government taxes attached to insurance policies could begin impeding climate adaptation efforts. The report cites research claiming that taxes and levies designed to fund, for example, firefighters is adding a surcharge of up to 44 percent to insurance premiums.

That can distort insurers' ability to properly price risk, the report says. And the high price of insurance can cause people to drop their policies, creating a burden on taxpayers when government emergency funds are delivered after a disaster.

"State and territory taxes and levies on general insurance constitute a barrier to effective adaptation to climate change," the report says. "State and territory governments should phase out these taxes and replace them with less distortionary taxes."