31 May 2017

Confusion reigns as NSW Government delays introduction of fire and emergency services levy

The NSW Government has announced an indefinite delay to introducing a new levy to fund the state’s emergency services – just one month before the levy was due to take effect.

Currently, emergency services in NSW – including the Fire & Rescue and Rural Fire Service – are funded through an emergency services levy (ESL) charged on home insurance policies, as well as some motor and commercial insurance policies. The ESL adds around 20% to the cost of household insurance premiums.

From 1 July 2017, the new fire and emergency services levy (FESL) had been due to transition into a property-based charge, which would be paid alongside council rates.

This was deemed fairer to the community as a whole and also as a means of combatting underinsurance, which occurs when inadequate insurance is held by the policyholder. Although this is a means of lowering premiums, in the event of a claim underinsurance may result in heavy financial losses to the policyholder.

In explaining the about-turn, the Berejiklian government cited concerns that some elements of the small business community may be adversely impacted by the new property-based levy.

What does this mean for your insurance in NSW?

NSW Rural Fire ServiceInsurers and brokers have been preparing for the phase out of the ESL since it was announced in December 2015 – investing millions of dollars into system upgrades, as well as educating clients on how the new levy would affect insurance premiums.

News of the state government’s decision to delay the FESL was therefore met with shock by the insurance sector given the short notice and lack of consultation. It has also sown confusion amongst policyholders across the state.

Drew Ferns, Gallagher’s Wollongong Branch Manager, said: “I’ve already had a number of conversations with clients who are requesting information on how this will impact their insurance premium prices.

“The frustration for insurance professionals is that we’re not able to answer these questions at this stage because the NSW Government hasn’t yet explained what the changes are and how they’re going to work.

“The level of taxes on insurance in NSW is already extremely high. When you take into consideration the ESL, stamp duties and GST, more than 30% of household insurance premiums and 40% of business insurance property premiums go straight to the government,” Ferns continued.

“Removing the ESL component was seen to be a big step in the right direction, so this announcement sends mixed messages to the entire community.

“When Western Australia phased out their emergency insurance levy, the rate of non-insurance dropped from more than 25% to less than 10%. It seems out of step that other states were able to achieve this sort of positive outcome whilst NSW cannot."

The state government plans to hold talks with insurance industry representatives at the end of the week.