The NSW Emergency Services Levy (ESL) Monitor has strongly hinted that the levy he’s employed to keep watch over should be abolished.

Insurers have campaigned for more than a decade for the levy’s removal, arguing that it is inefficient and exacerbates underinsurance, and were furious when the NSW Government abandoned plans to replace it with a fairer property-based tax in 2017.

Monitor Allan Fels’ role continued despite the u-turn, and he has frustrated insurers by criticising their pricing mechanisms and, according to the Insurance Council of Australia, straying beyond his remit.

However, the Monitor’s office will close at the end of this month, and in a submission to the bushfires royal commission Professor Fels and his deputy David Cousins make clear that they have serious doubts about whether the levy should remain.

The submission stresses that their views are not those of the NSW Government and that they have no policy-making role.

But it warns increases to the levy will worsen underinsurance in the state, and that Victoria, which abolished a similar levy not long after the Black Saturday fires of 2009, is in a much stronger position.

“If increasing funding requirements leads to more people being under- or non-insured, this can undermine the robustness of the funding,” the submission says.

“Numerous reports have suggested the current funding system is deficient, particularly around key issues such as fairness, affordability, and transparency.”

The submission notes that Victoria, which now has “a more stable and efficient” process, has consistently been able to maintain a higher level of funding despite having a smaller population.

ICA, which continues to push for reform, estimates that taxes and levies account for more than 50% of NSW household premiums, and 70% of small business premiums.

The Monitor’s submission says ICA “has an obvious vested interest in the removal of the ESL”.

But it does not dispute the findings of ICA-commissioned research that show as the ESL increases, so does underinsurance.

The Monitor’s submission says the levy has risen by 45% from 2018/19 to 2020/21.

“Further increases in ESL are likely to see more policyholders reduce or eliminate their cover as consumers are more sensitive to price increases than price decreases,” the submission says.

“This means that over time, the burden of the ESL must be shared amongst a shrinking population base, further exacerbating the problem.”

While the submission stops short of directly calling for the levy’s abolition, the concerns of Professor Fels and Dr Cousins are clear.

“The current ESL base is unable to continue supporting increases in funding for fire and emergency services without eroding itself over time, and making property insurance increasingly less affordable,” the submission says.

Click here to read the full submission.