The attempt by NSW Treasurer Michael Egan to force insurers to pay its HIH-related liabilities is one of the more bloody-minded reactions to the HIH crisis.

Senior industry figures contacted earlier today for comment are stunned at the action. ICA President Raymond Jones is just one who found no logic in Mr Egan’s attempt to impose a $69 million a year tax on the industry – and then legislate to prevent the expense being passed on to policyholders.

While the legality of such a move is highly dubious, insurers are battling the inescapable fact that the public is now bewildered by the whole HIH affair. Worse, populist radio rabble-rouser Alan Jones has turned the crisis into an industry-baiting exercise that the industry will ignore at its peril.

The ICA President said insurers will have no choice but to pass on the NSW-imposed costs, and he doesn’t believe the companies can be prevented from doing so. Added to the fire services levy, stamp duty and the GST, it is now a tax on a tax on a tax on a tax.

“This government levy will remove capital from private companies,” Mr Jones said. “It will undermine, not strengthen, our insurance companies, and that is the last thing we want at the moment.”

In an attack unusual for its vehemence, Mr Jones said both international and Australian investors will lose confidence in the local insurance market “because even though they chose to invest in one company, they would still effectively have their assets subject to loss by failures of unrelated companies”.

“It is a huge setback for Sydney’s hopes for being an international centre for financial services. Who would want to invest here?”