The National Insurance Brokers Association (NIBA) has raised doubts about the Victorian Government’s proposed transition arrangements to a property-based fire services levy (FSL).

In a submission to the government, NIBA also strongly criticised the Baillieu Government’s decision to delay the rollout of the new system until July 2013, suggesting it will result in “a very severe burden on insurance policyholders”.

The Government has proposed a new fire services levy that is collected through council rates instead of insurance premiums.

Submissions on the proposed new model closed last Friday, but some interested parties such as the Municipal Association of Victoria have been granted an extension to this week.

A Department of Treasury and Finance spokesman told insuranceNEWS.com.au on Friday that around 100 submissions have been received.

The existing fire services levy has been raised by around 30% this year to pay for significantly higher capital expenditure in the budget of the Country Fire Authority.

The NIBA submission warns that increasing the levy while the tax base remains relatively small could “result in unexpected and unintended consequences”.

“Our key concern is the prevalence of underinsurance, or a situation where people opt out of insurance altogether due to the increase in cost. It is important to consider that insurance-buyers are seeing premium increases generally.”

Domestic property-owners in regional Victoria face a tax burden of nearly 60% on the premium, while regional commercial property-owners face a tax burden of 123%, according to NIBA’s submission.

The association says the Victorian Government’s options paper fails to deal with transitional arrangements for insurance brokers who have to lodge FSL returns for clients arranging insurance with unauthorised foreign insurers.

NIBA is also concerned about the proposed “tapering” approach to be adopted during the phase-out of an insurance-based levy.

It echoes the Insurance Council of Australia’s doubts about the effectiveness of the tapering approach, which could result in brokers being unable to recover an equivalent sum of money to the levies they had already paid upfront.