The Insurance Council of Australia says the NSW emergency services levy on insurance should be removed as soon as possible, as new data shows the extent of the burden on policyholders.

The NSW government has committed to removing the levy and is consulting on transition arrangements and a replacement model.

In a submission, ICA says it does not prefer a particular model at this time, but “strong consideration should be given to the practicality and timeliness of implementing a new revenue base to ensure the ESL can begin to be removed as soon as possible”.

The submission also proposes a way to address flaws in the previous government’s arrangements for tapering down the levy. That reform effort was ultimately abandoned.

“We suggest consideration of an alternative approach where the amount of ESL required to be collected in the final year of the ESL is reduced to account for when insurance policies are written throughout the year,” it says.

Under the arrangement, a policy taken out one-quarter of the way through the year could pay 75% of the ESL rate at the start of the year, and a policy taken out halfway through could pay 50%.

ICA backs having the Independent Pricing and Regulatory Tribunal monitor the removal, saying its remit should be limited to confirming the pass-through of ESL reductions to consumers, and strong consideration should be given to limiting unnecessary costs for insurers.

Analysis of insurers’ pricing data shows the ESL directly adds an average of $252 to home and contents policies, $633 to commercial building and contents policies, and $922 to commercial building policies, the submission says.

After adding the compounding effects of the GST and stamp duty, the cost rises to $305 for home and contents policies, $766 for commercial building and contents policies, and $1200 for commercial building policies.

ICA says its analysis also underscores that the ESL disproportionately burdens those least able to afford it and does not fairly reflect the potential need for emergency services.

“The current system is not equitable, efficient or sustainable and is very complex,” CEO Andrew Hall says. “A new levy that rectifies these issues, while maintaining the principle of cost recovery, will lead to a better outcome for NSW.”