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ESL backflip is beyond belief

Insurers hauled before a public inquiry a couple of weeks ago to explain their plans for removing the emergency services levy (ESL) from property policies in NSW may now be wondering why they bothered.

NSW ESL Insurance Monitor Allan Fels called the inquiry last month, asked CEOs to personally ensure savings would be passed on to customers, and has repeatedly warned that failing to remove the levy after July 1 could trigger fines of up to $10 million.

Then, last week, insurers were told by the NSW Government to keep collecting the levy.

Plans to remove it are on hold indefinitely over fears the change will unfairly hit businesses, particularly SMEs.

The eleventh-hour announcement has blindsided the industry.

This reform was announced in December 2015 and the industry and Government have been working towards it ever since. Legislation to make the change was debated and passed in March this year.

Many people have already seen reductions in their insurance premiums as the industry, in full confidence, moved ahead with the transition. Renewal notices sent out for the next financial year have removed the levy.

The backflip raises questions over what happens to bills already paid, while brokers are left uncertain how to advise clients. Insurers have spent more than a year and tens of millions of dollars in preparation for the change.

“This has significant legal and commercial implications for the industry,” Insurance Council of Australia (ICA) spokesman Campbell Fuller says. “It is a logistical and technical challenge that will cause confusion and increase premiums for policyholders.”

NSW was not going it alone or forging a revolutionary path in switching to a levy collected through council rates to fund its fire services.

All other mainland states and territories have successfully abandoned levies on insurance policies, agreeing they were inefficient and contributed to underinsurance.

The NSW ESL raises household premiums by about 20% and commercial premiums by 30%, with a broader levy paid by all property owners seen as fairer and more effective.

“We have been working hard with the NSW Government and the monitor’s office to achieve a successful reform program,” National Insurance Brokers Association CEO Dallas Booth tells insuranceNEWS.com.au.

“We are surprised and concerned and extremely disappointed that the Government has made this decision.”

Premier Gladys Berejiklian says while the property charge will produce fairer outcomes in most cases, some people, particularly in the commercial and industrial sectors, would be “worse off by too much”, which the Government did not intend.

“We are a government that listens, and we have heard the concerns from the community, and we will take the time to get this right,” she said.

Illawarra Business Chamber Executive Director Chris Lamont says members started to raise concerns after the Government released a calculator in March to show the changes’ impact.

Some businesses in the region discovered they could end up paying double to fund the emergency services, compared with the current arrangement.

Mr Lamont says collecting the levy via a broader base linked to council rates makes sense and the group supports the concept, but there are issues that need to be examined in the calculations.

“It just doesn’t make sense that if you broaden the base you are going to slug small to medium-sized businesses more than they are currently paying,” he told insuranceNEWS.com.au.

The Sydney-based Property Council of Australia has welcomed the backflip and says some commercial inner-city and industrial property owners reported bill rises of nearly 600%.

“We welcome the courage of the Government to admit the model isn’t right and to look for alternatives that will both fund our essential services yet are fair on property and the community,” the group’s NSW Deputy Executive Director Cheryl Thomas says.

The Property Council has also suggested fire and emergency services should be funded from the public purse, in the same way police and health services are via the budget.

The fiasco prompted similar thoughts from ICA.

“The Government’s failure to introduce its ESL on time calls into question the notion that emergency services should be funded separately rather than through consolidated revenue,” Mr Fuller says.

Local Government NSW says the ESL is based on the unimproved land value of property across NSW, but the most recent valuations mean significant increases in contributions for many property owners.

“Councils have already done a lot of work to comply with the Government’s ESL legislation and there will now be a need to undo this work – not to mention the associated costs,” President Keith Rhoades said.  “While this is regrettable, the chance to get the levy right should be our focus.”

The monitor was also left wondering after the announcement.

“We are consulting with the NSW Government on practical implications regarding the reform deferral,” Deputy ESL Insurance Monitor David Cousins said. “In the meantime, we are continuing to monitor the industry and if we have any concerns about unreasonably high premiums or false or misleading conduct, we will take action.”

The industry is struggling to understand how such an important reform, which appeared to be across the line, could have been handled so badly.

LMI Group MD Allan Manning, a long-time campaigner against premium-based fire services levies, says that with one month to go the industry should have been applauding the NSW Government for removing a disincentive to full insurance and a grossly unfair hidden tax. 

“Instead, we are shaking our heads in complete disbelief.”

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