In the lead-up to July's snap poll, Tasmania's Premier Jeremy Rockliff promised to set up TasInsure, saying it would save families $250 a year.
But the plan was tweaked on Thursday, with Mr Rockliff saying TasInsure would instead be a state-owned, not-for-profit statutory authority to oversee and support insurance in Tasmania.
Labor, the Greens and influential crossbench independent Peter George labelled the move a backflip and called the original promise a hoax.
"It was a ludicrous policy that promised only false hope for people and businesses hoping for relief from soaring insurance costs," Mr George said.
"TasInsure would have driven the state into ever deeper debt as insurance companies picked the low-hanging fruit, leaving the highest-risk categories for the Tasmanian taxpayer to foot."
Mr Rockliff denied breaking a promise, describing TasInsure as "a vision" and saying the $250 savings commitment to families would be bettered.
It would cost $4.2 million to implement the new model, less than the original proposal, he said.
The Liberals, who are governing in minority, have flagged cuts in the May 21 state budget to rein in increasing debt.
Concerns were raised about the risks a company-model TasInsure would have placed on the budget.
It was unclear how the new TasInsure would deliver cheaper insurance prices, Labor MP Dean Winter said.
The Liberals plan to progress legislation to make TasInsure a reality and will finalise initial market interventions to support hard-to-insure activities where existing market settings are not delivering.
They say TasInsure will "partner with insurers, brokers, reinsurers and other parts of the insurance system to address gaps in availability and affordability".
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