Failure to remove the emergency services levy (ESL) in NSW cost insurers more than $40 million and saw funds spent “to no purpose”, the Insurance Council of Australia says in a submission to a parliamentary inquiry.

It says insurers spent significant time, effort and resources due to the backflip on planned levy reforms and were unable to recoup undercollections.

“More importantly, the justifications for this reform, vindicated by successful examples in other states, remain valid and we believe NSW is the poorer for them being put aside,” the Insurance Council says.

NSW announced in May it was abandoning a plan to switch to a property-based fire and emergency services levy from last July, putting the proposal on hold indefinitely and restating the previous system while it considered the way forward.

The Insurance Council says the state should press ahead with the reforms or look at other options if it rejects a property-based charge.

Alternatives could include funding emergency services from state budget revenue or replacing the ESL with a fixed-rate levy on policies currently liable for the payment.

“While not as economically efficient as the Insurance Council’s preferred option, it would still have advantages in terms of simplicity, transparency and less costly administration processes over current arrangements,” the submission says.

The ESL Act to continue the insurance-based levy includes a mechanism for re-activating ESL reform from July 2019, through a government notice issued before July 1 this year.

In a separate submission insurer IAG says a broad-based property levy is the most equitable and efficient option.