A note from Revenue NSW caused consternation among insurers after it incorrectly implied they had been over-collecting the Emergency Services Levy (ESL).

The way the controversial levy on insurance premiums is calculated is highly complex. Insurers have to estimate their share of liability and then collect that amount over the course of the year.

Most target a small under-collection to avoid being “named and shamed” by ESL Insurance Monitor Allan Fels.

But “final assessment” notices sent to the industry on Friday setting out insurers’ liability for the 2018/19 year included inaccurate figures which suggested insurers had in fact over-collected.

PFS Consulting, which works with insurers to keep track of levy liabilities, says the error was caused by Revenue NSW overestimating the size of the market.

“When the notes went out we started receiving calls within an hour,” PFS Director Martin Fitzpatrick told insuranceNEWS.com.au.

“It was causing serious angst. Insurers will aim for a small under-collection, but these figures were forcing the entire industry into over-collection. There could have been unwarranted naming and shaming by the Monitor.”

PFS was able to identify double-counting of some premiums, and following discussions Revenue NSW admitted the mistake and confirmed it would re-issue final assessment notices.

The Insurance Council of Australia (ICA) says despite the “swift rectification”, the incident highlights serious problems with the ESL.

“The uncertainty involved in estimating ESL – along with potentially hefty fines and reputational damage for inadvertent over-collection – have been a longstanding concern of ICA and its members,” spokesman Campbell Fuller told insuranceNEWS.com.au.

“The ESL is highly inefficient and overly complex. ICA continues to advocate for the abolition of this unfair tax on insurance customers.

“The ESL, combined with GST and state stamp duty, means taxes are a major component of the final amount that customers pay on their household insurance.”

The ESL was due to be replaced with a broad-based property levy in 2017, but the NSW Government abandoned the reform at the last minute, costing the insurance industry an estimated $40 million incurred in altering its systems twice.

Despite continuous campaigning by the insurance industry, the NSW Government says it has no plans to revisit the issue of ESL reform.

“The process of using levies on insurance premiums is an anachronism,” Mr Fitzpatrick told insuranceNEWS.com.au.

“All indicators suggest it is a dampener on economic activity.”