Federal MPs examining northern Australia’s economic potential have been told insurance is vital to developing the resource-rich but catastrophe-prone region.

“Northern Australia’s role in the development of emerging industries such as critical minerals and renewable energy will be influenced by the availability and affordability of insurance across the broader supply chain,” the Insurance Council of Australia says in a submission.

“This includes commercial facilities, worker accommodation, transport infrastructure and community assets.”

ICA’s feedback comes after the Joint Standing Committee on Northern Australia’s inquiry into emerging industries said in an interim report this month: “Given ongoing insurance affordability and accessibility issues, the committee reopened submissions on the operation of the cyclone reinsurance pool.”

ICA says the pool was not designed to solve the broader challenge of insurance affordability and economic development in northern Australia.

“Insurance pricing continues to be shaped by increasing natural hazard exposure, flood risk, claims inflation, building cost escalation, housing development in high-risk areas and global reinsurance market conditions.”

While the pool has moderated premium increases and delivered some sustained reductions, insurance remains expensive for many homes and businesses in the region, according to the submission.

“Ultimately, the measure of any pool’s effectiveness is whether it drives down underlying risk, and risk is continuing to climb across northern Australia,” ICA says. “While the pool provides an important mechanism for reducing the cyclone reinsurance component of insurance premiums, it does not reduce the underlying physical risks facing communities.

“It has never been more critical to strengthen the resilience of homes, businesses and infrastructure to support northern Australia’s economic development.”