Property Insurance: The Hard Reality of Government Taxes and Underinsurance

By Chris Dougherty, General Manager
30 May 2018

Ever wondered who funds the firefighters, emergency medics and the fearless people who arrive when things go wrong at home or in the office? If you pay property insurance in NSW, it’s you.

For the last decade, there’s been a spotlight on the topic of taxes on insurance premiums. And in the last year, people in NSW have noticed that their property insurance premiums seem higher than in the last year even. There are reasons for this — this is not a good news article. Yet, knowledge can be power and at Westlawn, we believe in keeping our clients in the loop on the good, the bad, and the real.

Why the price rise? Aside from the many variables that affect the cycle of insurance premiums — for example, when natural disasters hit, insurance claims rise and price hikes follow — the NSW emergency services levy is the major contributing factor. NSW is the only state in Australia still funding its emergency services via a tax added to the price of property insurance. In 2016, the NSW announced it would change this within an 18-month deadline of July 2017 — following suit of other Australian states, it would implement a new system that would include the levy in local Council rates for all property owners. Insurance companies spent this 18 months removing the levy from premiums and adjusting prices to more affordable rates. And then the government rescinded. Effectively, insurance companies are now readjusting backwards, adding the levy back in to its rates and making up for losses in the processes.

  • On domestic or house policies, the levy rate adds an estimated 17-19% of the premium.
  • On commercial policies, that’s more like 36-39%.
  • GST and stamp duty is added on top of that.

This explains a significant chunk of most people’s property insurance premiums.

The Back Story

This taxing system has been contentious for years and in all Australian states but NSW, the tax has been removed from insurance premiums. In the past decade, a royal commission, two state government reviews and a number of commissioned studies have acknowledged the link between insurance taxes and the alarmingly high incidence of underinsurance and – even worse – non-insurance in Australia. It became troublingly clear when the fires of Black Saturday ripped through communities in rural Victoria in 2009 and many residents and businesses did not have the insurance to recover without assistance. Victoria, followed by other states, introduced the new system making property owners responsible through their Council rates.

Previously, the cost of the levy fell entirely to those able and prudent to pay for full property insurance.

In 2016, the NSW announced it would follow suit. And then it didn’t. Unexpected costs and consequences primarily to commercial businesses were the main reasons Premier Gladys Berejiklian gave for retracting its promise.

What Can You Do About This?

What all this effectively means is that those paying for appropriate property insurance, both residential and commercial, are footing the bill for emergency services. There are efforts to continue lobbying the NSW government — the Insurance Council of Australia initially pushed for the change and expressed its “shock and disappointment” when the decision was called off. Premier Berejiklian has said that the NSW hopes to introduce a fair system for all in the future.

The answer, however, is not to skip insurance. Currently, in NSW, Victoria and Tasmania, emergency services may present individuals and businesses with charges when there is no insurance in place. Not to mention the costs and consequences of being underinsured in the face of any unforeseen accidents — from small fires to natural disasters such as flooding.

Contact a Westlawn advisor who can help you understand your appropriate property insurance needs and options.

SOURCES:

Sydney Morning Herald: NSW Fire Services Levy Delayed

NSW Treasury Department: Fire and Emergency Services Levy

No Tax On Insurance

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