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Governments still treat insurance as a cash cow

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Governments have become increasingly hooked on tax revenue from gambling, but they don’t do too badly out of insurance, either.

The latest Federal Budget has dug into the Australian Reinsurance Pool Corporation for a special $100 million dividend on top of a new annual $75 million “dividend”, while the Victorian Government is having a last grab at policyholders before the fire services levy is abolished on July 1 next year. It is also taking $471 million from its WorkCover monopoly over four years.

While each new natural disaster highlights the level of underinsurance, and the number of people who choose not to insure their homes at all, governments continue to raise the cost of the product by loading up taxes on policies and drawing dividends out of the organisations that have built up reserves.

A calculation by LMI MD Allan Manning shows that a $1000 insurance policy in country Victoria will cost an extra $950 in fire services levy, with a $195 GST and $214.50 stamp duty loaded on. That’s a total $1359.50 in taxes on top of the basic $1000 premium.

As with the Federal Government framing its Budget, the states – particularly on the eastern seaboard – are trying to maintain spending when tax receipts are falling, and their insurance agencies are easy targets.

The insurance industry’s comparatively low profile means that much of the detail is hidden in the Budget papers and does not make headlines. This is what happened with the dividends from the Australian Reinsurance Pool Corporation.

The corporation is budgeted to hand over $175 million in 2012/13 and then $75 million in dividends annually until 2015/16. The imposition of a dividend is new this year and is intended to compensate the Commonwealth for guaranteeing the Corporation’s liabilities.

Anyone who hoped taxes from insurance might go towards disaster mitigation – such as grants to the states for flood levees or measures to reduce the cost of flood cover to high-risk customers – will have searched the Budget papers in vain.

The Government has allocated $26 million a year over four years to the National Partnership on Natural Disaster Mitigation, leading ICA CEO Rob Whelan to say a more far-sighted Budget would have invested in measures to protect towns that are flooded frequently.

“Building permanent levees around dozens of flood-prone communities, and improving flood mapping, would ultimately mean governments spent much less in disaster relief funding,” he said.

Mr Whelan has welcomed $4.2 million allocated to the Bureau of Meteorology to improve its capability to respond to extreme weather events.

But federal funding of $30 million will not go far towards improving risk reduction by planning authorities – or build many levees.

Victoria and the Federal Government have so far taken the lead in the Budget grab, and cynics will be looking the other states to follow when they deliver their budgets: Tasmania, Western Australia and South Australia this month, NSW on June 12 and Queensland on September 11.

The Northern Territory Government has bucked the trend in its 2012/13 Budget, maintaining its tax take from the Territory Insurance Office at $3.72 million in the coming financial year, the same as estimated for 2011/12.

The NT’s stamp duties, which include duty on insurance premiums, are forecast to rise $10.6 million to $149.8 million in 2012/13, mostly due to an increase in property transactions.

Last year’s disaster inquiries have led to some states allocating funds for flood mitigation, but the inquiries have demonstrated that much more is needed. 

A holistic approach to stop construction on flood plains, build protection for communities already at risk and help consumers make informed choices about risk is going to cost much more.

It seems that insurers will have to withdraw cover for the message to get through, as it certainly did when Suncorp announced it will not issue new cover in the Queensland towns of Roma and Emerald.

Unfortunately, this year’s taxes on the insurance industry are mostly headed for consolidated revenue rather than investment in the lessons learned from 2011.

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