The National Insurance Brokers Association (NIBA) has again called on the NSW Government to scrap the Emergency Services Levy (ESL), warning the “unfair” tax is worsening the state’s under-insurance problem.

NIBA says its members have been “regularly arranging” sub-optimal covers for small business clients.

“The primary driver for [sub-optimal cover] is affordability and the key component of affordability is taxes and levies,” CEO Dallas Booth told insuranceNEWS.com.au.

He says sub-optimal cover is “anything that is less than an appropriate level” of insurance protection.

“Any cover is better than none. There is no doubt about that,” he told insuranceNEWS.com.au. But he adds this could mean “there could be areas where if there is a significant loss, the insurance payout may not be the full amount necessary to help the business recover from that loss”.

The ESL scheme was supposed to be replaced in July 2017 with a property-based levy but the NSW Government cancelled the planned move a month before its implementation, blindsiding the industry.

Since then the industry has kept up its push to have the ESL scrapped, maintaining the tax is a major reason behind the state’s high levels of under-insurance.

NIBA says the cost burden is most acute for SMEs wanting to buy property insurance.

“The combination of GST, stamp duty and the [ESL] increases the cost of property insurance by up to 70% for NSW small businesses,” NIBA says in a submission to the NSW Small Business 2020 Strategy Discussion Paper.

“This ‘tax on a tax on a tax’ can have unfortunate and undesirable consequences for small business owners.”

The ESL scheme has also forced some business owners to seek non-traditional insurance solutions, with a discretionary mutual pool the most common option.

“In these cases, contributions to the mutual pool are not considered insurance premiums, and thus are not subject to the ESL,” NIBA says.

“While this is a reasonable outcome for the business that has access to these mechanisms, each time this occurs traditional insurance clients have to carry a higher proportion of the ESL, as the ESL funding model requires insurance companies to collect a dollar amount, not a percentage rate on premiums.”