The Insurance Council of Australia (ICA) has written to the NSW Government questioning its treatment of gap policies, which cover the potential shortfall between a motor insurance payout and the remainder of a vehicle loan.

ICA says members have informed it the Office of State Revenue (OSR) is treating gap insurance as “type A insurance”, attracting 9% duty.

“On this view, the OSR considers that the event that gives rise to the loss covered under a gap insurance policy strictly relates to the liability under a motor vehicle loan agreement, and that the loss of the motor vehicle is not the event covered by a gap insurance policy,” it writes.

“The insurance council disagrees with the OSR’s interpretation.”

ICA says gap cover is “type B insurance” and the OSR’s actions conflict with established market practice.

It offers to meet with the OSR “to expedite a decisive resolution to this industry-wide concern”.

“It is unfortunate that this has created inconsistency and a high level of uncertainty across the general insurance industry,” it says.