Insurers will be penalised if they engage in “prohibited” action to protect margins as NSW moves to a new emergency services funding regime by July 1 next year, the Emergency Services Levy Insurance Monitor warns.

It says a strategy is in place to identify errant practices between July 1 2014 and December 31 2018.

There will be extra focus on the period after December 10 last year, when the NSW Government announced plans to replace the insurance-based emergency services levy (ESL) with a charge paid alongside council rates.

Ditching the ESL will remove about $800 million from the cost of insurance in the state.

“The monitor expects the full impact of removal of the ESL to be passed through to policyholders,” it says in its first report.

“The monitor’s clear view is that removal of the ESL should not be considered an opportunity for insurers to lift margins. Where this occurs the monitor will closely scrutinise the underlying basis for any base premium increases.”

Penalties for insurance price exploitation include fines of up to $10 million for corporations and $500,000 for individuals.

NSW property-owners are expected to save about $40 annually on their insurance policies under the new levy regime.

The monitor’s report says about $800 million will be raised through the ESL on property insurance premiums in the year to next June 30.

“I expect the full impact of the removal of the ESL to be passed on to policyholders,” Monitor Allan Fels said. “The penalties for failing to do so are hefty.

“The NSW Government has provided me with substantial powers to obtain information from insurers.

“I won’t hesitate to take action against insurers that engage in unreasonable pricing or false or misleading conduct in relation to the emergency services levy reform.”