The Insurance Council of Australia (ICA) has welcomed the NSW Professional Services Industry Taskforce’s proposal that the state scrap stamp duty on insurance policies.

NSW stamp duties on insurance raise $823 million – or around 1.5% of state revenues – every year.

“Given the modest revenues involved, the NSW Government is positioned to follow the lead of the ACT Government in phasing out stamp duties on insurance,” ICA says in a submission on the taskforce’s draft professional services industry action plan.

The council also calls for the taskforce to recommend law reform to clear up uncertainty created in the market for directors’ and officers’ (D&O) insurance following last year’s Bridgecorp decision.

In the Bridgecorp case, the New Zealand High Court last year found that receivers have first claim on D&O policy proceeds in corporate failures, effectively meaning the policies cannot be used to pay the legal costs of directors and officers.

The New Zealand legislation under which the decision was made is basically identical to NSW law, and the courts are yet to refute or ratify the New Zealand decision.

The ICA submission raises a number of negative consequences likely to flow from the Bridgecorp decision, including the creation of a shortage of experienced directors, the loss of entrepreneurial activity and the inability to pay defence costs impacting on the viability of small business.

The council also challenges the draft action plan’s assertion that the cost of professional indemnity (PI) insurance is too high.

“There is no evidence provided in the draft plan to support these claims,” ICA says. “Furthermore, it is unclear whether the alleged high cost of PI is an Australia-wide or NSW-specific issue.”

Noting the plan’s assertion that the costs of PI are a barrier to the competitiveness and viability of legal firms, ICA says state law councils run their own PI schemes and the cost of cover is a reflection of historical claims experience and not the result of any cross-subsidisation within the insurance industry.

The draft action plan’s proposal that limited liability partnership structures be developed to reduce PI costs for law firms is also rejected, with ICA saying there should instead be “more focus on raising professional standards”.