NSW brokers say the pending abolition of the Emergency Services Levy (ESL) on insurance will be a game-changer for affordability and underinsurance in the state. 

But some remain concerned politics may yet “get in the way”, and others believe clients need to understand that other factors will cause premiums to rise as the levy comes off. 

As reported by insuranceNEWS.com.au last week, NSW Premier Chris Minns has committed to removing the ESL from insurance and replacing it with a “fairer” system. 

The ESL adds about 18% to home premiums and up to 30% to commercial premiums in the state, which suffers chronic underinsurance issues. NSW is the last mainland state to fund emergency services through a levy on insurance. 

“This is a huge step in the right direction as the pressures of insurance affordability continue to increase across the state,” Aviso Broking Chief Distribution Officer Paul McLean tells insuranceNEWS.com.au. 

“As ESL charges make up a significant amount of the premium payable for consumers and businesses alike, the over-arching savings as an outcome of the changes can be channelled into addressing underinsurance issues and supporting those that can’t afford insurance altogether.” 

Many brokers recall a previous promise to axe the levy and subsequent u-turn in 2017. 

“There is concern the reform could be tied up in red tape and either not happen, or not be timely,” Resillium Regional Manager NSW/ACT Belinda Basha said. 

Mr McLean says it’s “always a concern” that politics could get in the way of a change that is “already well overdue”. 

Mooneys Insurance Brokers MD David Mansley says he’s “confident it will go through”, but fears insurers may not pass on the full saving. He also has concerns around the ability of a monitor to accurately track the transition.  

“I anticipate the base premium will increase,” he says. “Maybe I am just a bit cynical.” 

Insurance Advisernet MD Shaun Standfield says the problem is more around education, as it’s unrealistic to expect the entire saving from removing the ESL to be reflected in new premiums. 

“I believe the Insurance Council will have to embark on an education campaign to moderate views that premiums will reduce by the exact amount of the current ESL rates,” he says. 

Mr Standfield says premium reductions will be eroded by increases in property catastrophe reinsurance rates, claims inflation, and falls in the value of the Australian dollar. 

“All brokers have a role in explaining how the reduction will work in practice – premiums won’t reduce by the exact amount of the reduction of ESL due to the many other economic factors at play that influence insurance pricing,” he says. 

“As a broker that last thing we wish to see is a reduction in insurance companies providing property insurance, so we need to provide our collective voice in explaining the factors that contribute to rising premiums.” 

Mr McLean agrees that insurers will look to pass on savings where they can. 

“Reforming the ESL would be a major win for insurance affordability in NSW, an issue that has been topical for a long time. I don’t see the insurers getting in the way by not passing on the full savings.” 

And Ms Basha believes the reform could encourage greater competition. 

“ESL reform provides an opportunity for more competition in the Australian Insurance market with previously underinsured or uninsured risks now available in the market for placement. 

“It is more likely this competition will encourage insurers to pass on the full saving.” 

The government has not given a clear timescale for the reform. The Treasurer will lead consultations with industry and stakeholders, including issuing a discussion paper in coming months.