The NSW Government has again been urged to reconsider funding the state’s emergency services via a broad property-based levy.

The Insurance Council of Australia (ICA) says the reform is critical to post-disaster recovery and rebuilding efforts.

It says the current Emergency Services Levy (ESL) scheme, which relies mainly on taxing insurance products, discourages residents and businesses from taking up insurance. The consequences are often brought to the fore when disasters strike, with many struggling financially to rebuild their properties and businesses.

“The role of insurance companies in this [ESL] system is to act as tax collectors for the NSW Government,” ICA says in its submission to the NSW Independent Bushfire Inquiry.

“This is not a new situation and it is well understood that the higher rates of non-insurance and under-insurance of buildings and contents in NSW is, in large part, an outcome of how NSW has chosen to fund its emergency services.”

ICA says last summer’s bushfire catastrophe will be no different, with many expected to find it difficult to recover financially as they are either under-insured or have no insurance at all.

It has engaged an expert to analyse claims data from the bushfires to determine the extent of under-insurance among affected policyholders. The analysis is yet to be completed.

ICA’s submission urges the NSW Government to replace the ESL with a broad property-based levy, similar to the model introduced by Victoria after the 2009 Black Saturday bushfires.

A property-based levy was supposed to be introduced in NSW in July 2017, but the State Government abruptly called it off a month before its implementation.

The cost of buying insurance in NSW is about 21% higher on average than the rest of Australia because of the ESL. The layering of insurance duty and GST can result in taxes adding more than 50% to the base premium for an insurance policy.

The National Insurance Brokers Association (NIBA) has also urged the Government to reconsider its position, describing the current arrangement as one that “cannot be allowed to continue”.

“In these increasingly uncertain times, property owners must be encouraged and supported to adequately insure their risks,” NIBA says in its submission.

“It is the Government’s responsibility to ensure that barriers that impede responsible property ownership, such as the ESL, are removed, especially as the Australian public becomes more price-sensitive.”