A tax burden of more than 50% on NSW insurance policies is “obscene”, according to an industry figure who has campaigned against taxes in insurance for more than 20 years.

As insuranceNEWS.com.au revealed last week, increases to the state’s emergency services levy (ESL) from July 1 will mean taxes account for more than half of home and contents premiums, and up to 70% of commercial premiums.

Many, including LMI Group MD Allan Manning, have campaigned for the removal of insurance taxes such as the ESL and stamp duties.

NSW was to abolish the levy and replace it with a broad-based property tax in 2017 before a last-minute U-turn by the Berejiklian government.

It is the only mainland state to still fund its emergency services through an insurance levy. In the ACT, where insurance taxes have been removed, policyholders pay just 10% GST.

“There is something wrong with the whole process,” Mr Manning told insuranceNEWS.com.au. “It really is obscene. We are getting taxed in the same way as alcohol and tobacco. You can understand high taxes on those things, because of the impact on the health service, but the role of insurance is to take the burden off government.”

The Insurance Council of Australia (ICA) says the “unfortunate” levy increase will shortly start appearing in customers’ renewal notices, and could worsen underinsurance.

It says analysis shows the higher cost of premiums will result in a $20 million reduction in pre-tax expenditure on insurance.

“This means about 2000 households will drop their home building insurance and 9000 households will stop insuring their contents,” ICA spokesman Campbell Fuller told insuranceNEWS.com.au

“Many more will reduce their amount of cover to lower their premium, leaving them underinsured and potentially unable to resume their quality of life if their home were badly damaged or destroyed.”

The NSW Government has failed to respond to these concerns, despite being asked specific questions by insuranceNEWS.com.au on whether the levels of tax are appropriate, and whether they could lead to underinsurance.

The questions were ignored by the Government, which provided instead a statement from Police and Emergency Services Minister David Elliott justifying the ESL increase, which will pay for improved access to workers’ compensation for firefighters diagnosed with cancer.

“The NSW emergency services levy will increase to ensure our firefighters receive the medical care and support they need and deserve,” he said. “The extra support will be funded as part of a cost-sharing arrangement with insurers, councils and the Government.

“Insurers will meet 73.7% of the cost, government will provide 14.6% and councils 11.7%.

“This cost-sharing arrangement is consistent with how the emergency services levy has been funded historically.”

ICA says another ESL increase has already been flagged for next year, and there may be further announcements in the NSW budget, due on June 18.

“Despite the Berejiklian Government’s decision to reverse the ESL reforms, ICA continues to advocate for the removal of this unfair tax,” Mr Fuller said. “At present, insured property owners provide by far the largest share of funding for fire and emergency services that benefit the entire community, whether insured or not.”