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Victorians ‘reducing cover because of FSL’

Victorian brokers are reporting commercial clients reducing their insurance as a result of the higher fire services levy (FSL) charge.

Business-owners have been expected to cut down on insurance because they won’t be able to afford the massive rises brought about by the FSL imposed on insurers.

The brokers also report widespread confusion while they await clarification from the Victorian Government on the transition process and wait to see if other insurers will follow QBE’s lead with moves to stop people cancelling policies early to avoid being taxed twice.

Alan Wilson of Alan Wilson Insurance Brokers in Traralgon has a client with a rural business whose FSL charge has moved from $52,000 to $89,000, prior to GST and stamp duty.

The client had intended to raise its sum insured but cannot afford the FSL increase and now is asking to reduce its cover.

Mr Wilson says it is “frustrating when clients are penalised for wanting to do the right thing” and ensure their cover is adequate.

Shepparton-based Griffiths Goodall Insurance Brokers GM Ben Goodall says it is difficult to explain the large increases to clients given the lack of explanation around the transition, while Midland Insurance Brokers MD Terry Lane says clients “often assume that insurers are ripping them off”.

“It is very difficult to explain it to clients, particularly when we do not know exactly what the insurance companies are going to do,” he told

QBE, Allianz and CGU have all raised the FSL in its final year to 95% from 85% for commercial business in the country and to 54% from 44% in metropolitan Melbourne.

CGU and QBE have increased the residential levy to 28% from 18% for city customers and to 46% from 36% for country policyholders, but Allianz has held residential rates at the 2011 level.

The Government gives insurers a total FSL figure to collect, which they raise by adding a levy to premiums. If insurers under-collect they have to make up the difference, and since Victoria is about to enter the final year of the levy, they will not be able to recoup any loss in future years.

A client briefing from Marsh notes insurers have moved to stop clients “short-terming” such as by extending policies to June 30 2013 rather than renewing, or cancelling early to avoid double charging once the property levy comes into force in July 2013.

Marsh says it and others in the industry proposed the Government implement a phased approach, but since this will not be adopted insureds with policies extending beyond July 2013 could be forced to pay FSL on their premium as well as on their property rates.

Insurance House Group Director Gary Gribbin says he expects other insurers will follow QBE’s lead in not refunding the FSL component of any policies that are cancelled early. He is hoping the Government will introduce a phase-in system, where the FSL component of the premium would reduce as the property tax levy increases.

Mr Gribbin says “double-dipping” will be particularly unfair on people who sell a business and have a legitimate reason for cancelling their policy but who will not have the FSL portion refunded.

He says many small business-owners expect to use the sale to fund their superannuation.

“It is just perverse,” he told

Mr Goodall says the lack of information around the transition to a property-based charge is putting extra strain on brokers trying to explain large premium increases to clients, whose businesses are already stretched due to economic conditions.

Given the FSL is budgeted to raise $580.5 million in its final year, he says it is hard to understand the limited detail about the transition.

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