NSW should scrap all taxes and duties on general insurance products, IAG says, calling the adoption of such a move “an important first step” that would help address the state’s under-insurance problem.

Not only does the state have the lowest take-up of home and contents covers, it is also the jurisdiction with the highest rate of insurance duties and levies. The insurance industry has long maintained there is a correlation between the two statistics.

“IAG argues that there is a clear social and economic case for eliminating or at least reducing state insurance taxes,” the insurer said in a submission to the NSW Review of Federal Financial Relations discussion paper.

The paper has highlighted the state’s reliance on “taxes that have relatively high economic and social costs and dampen productivity”.

Insurance taxes, including the emergency services levy (ESL), “are commonly considered to be one of the most costly taxes to society,” the paper says.

The IAG submission also advocates a broad-based property levy to replace the ESL.

“The change will be fairer for our community as these important services will now be funded by all property owners, not just those with insurance,” IAG said.

“Removal of the ESL on insurance will also see savings in insurance premiums passed on to customers. This is an important first step in addressing insurance affordability, accessibility and participation.”