Businesses have been slapped with 300 per cent price hikes over the past couple of years, according to the Australian Amusement, Leisure and Recreation Association.
Theme parks have struggled to secure affordable coverage, with public liability insurance skyrocketing from $150,000 to up to $1.5 million in the past four years, the association says.
Businesses buckling under the pressure cannot switch providers, as the industry only has one offering on the market.
Some city shows - including the Melbourne Royal Show, Queensland's The Ekka, the Royal Adelaide Show, and the Perth Royal Show - haven't experienced a resulting decline in attractions compared with previous years.
However, an inflatable attraction at Adelaide's show recently withdrew because they couldn't secure appropriate insurance cover and the Perth Royal Show says the problem extends to other jumping castle operators.
In Tasmania, The Royal Hobart Show has had a gradual decline in attractions over the past four to five years, and showrunners expect a further drop in the next three.
Compounding the insurance issues in Tasmania is the cost for operators to get across Bass Strait to access other markets and the lack of funding and major events compared with other cities.
"They are smaller operators down here and they haven't spent the money to invest in the infrastructure as what people on the mainland have," a Royal Hobart Show spokesman said.
"We are definitely concerned of the impacts of the limited insurance options and severe increases in insurance costs that our amusement exhibitors are facing."
The crisis puts regional shows at risk as businesses scale back on how many rides they can afford to insure, and how many they're putting into circulation, according to The Showmen's Guild of Australasia.
Less equipment means there's more space at city shows for operators to fill in, and smaller, regional shows are missing out.
The industry is running with about 70 per cent ride capacity, and is just about unviable in the current insurance situation, the Australian Amusement Association's vice president Damian De Jong says.
It's putting at risk the future of family businesses that have run for decades.
"My kids now are starting to think about other things to do when this was the perfect opportunity for them to take over the next generation," Mr De Jong said.
The Australian Small Business and Family Enterprise Ombudsman Bruce Billson last year found an industry-initiated discretionary mutual fund, or DMF, was the only "workable and durable" solution for the amusement crisis.
The funds let members pool their money to meet each other's agreed financial risk obligations when they meet common risk profiles and have claims approved at management's discretion.
However, the amusement industry is essentially reliant on a loan of up to $5 million "seed capital" from the federal government to set one up.
The Australian Amusement, Leisure and Recreation Association is meeting with the government later this month and hopes it will take up their DMF pitch.
The sector employs more than 7000 people in Australia and contributes $1.84 billion to the economy.
"I hope that this government does see the value in what our industry brings to the table," association general manager Kristy Ahrens said.
The federal government acknowledged the amusement sector's difficulties in accessing insurance, and the matter was still under consideration, a spokesperson said.
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