QBE has reduced the fire services levy (FSL) applied to Victorian country and metropolitan policies just three months after increasing it by 10 percentage points.

On Friday, QBE told brokers it would lower premiums from September 29, dropping the FSL component from 95% to 70% for country commercial clients and from 54% to 50% on metropolitan commercial policies. It has also cut the NSW rates.

Lacking transitional arrangements from the Victorian Government, and with the Insurance Council of Australia’s decision to stop calculating industry-wide rates, insurers have found setting an accurate levy – one that will not leave them out of pocket, while avoiding accusations of price gouging – extremely difficult.

An industry source told insuranceNEWS.com.au that without State Government legislation, insurers are “working in the dark”.

The source expects other insurers to follow QBE’s lead in reducing rates, which will be reviewed twice before the FSL is abolished on June 30 next year.

QBE has cut the levy for householders in rural Victoria to 30% from 46% and in metropolitan areas to 20% from 28%.

The company has cut NSW rates, to 33.5% from 35% for commercial policies and to 18.5% from 21% for residential customers. The motor levy remains at 1%.

QBE has reiterated that it will generally not allow refunds on cancellation or short-terming, whereby clients try to stop policies on June 30 and renew when the FSL is abolished.

Last week Lumley became the latest insurer to confirm it will not refund the FSL component on policies. The change is effective from October 1 on ISR policies and from November 1 on business packages, secure rural, intermediated personal lines and engineering policies.

LMI Group MD Allan Manning, a fierce critic of the FSL, says it appears QBE is tapering the levy ahead of its removal.

“Because there is no proper transition yet, for the first month [QBE] pushed it above what it normally would be and now they have levelled it out,” he said.

Dr Manning expects other insurers will follow QBE’s lead.

The Victorian Government is soon to unveil details of how the FSL will be replaced with a property-based tax. insuranceNEWS.com.au understands legislation will be tabled in Parliament in the next few weeks.

Insurers, the Victorian Farmers Federation and the monitor for the 2009 Victorian Bushfires Royal Commission, Neil Comrie, have all criticised the Victorian Government for failing to introduce transitional arrangements to the property-based tax.

“The State Government has tried to blame the insurers but I think from talking to some of the politicians, the word ‘transition’ is a farce,” Dr Manning said. “I’ve heard so many ludicrous things [from public servants], like that every insurance policy gets renewed on June 1.”

Dr Manning says many policyholders who have renewed their insurance for a standard 12-month period will be hit with a double tax from July 1 next year.

“There will be a doubling up,” he said. “If I pay my insurance today, then come the first of July next year my rates will include the fire services levy and the property tax.

“Everyone will be clobbered right through with a double tax.”

A spokesman for the Victorian Government says it remains committed to a fair and equitable transition from the FSL to a property-based tax, while delays have been due to the authority “trying to get the legislation right”.