Premium funders fear losses from Victorian FSL switch

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18 June 2012

Premium funders stand to lose $2-$3 million because there will not be a phasing-out period for the Victorian fire services levy (FSL).

The funders place $1.25 billion of business in Victoria, of which $80-$100 million comprises FSL.

If an insured cancels a policy, the funder is normally repaid the unexpired premium, but insurers have said they will not refund the FSL portion of the premium in the transition period.

Insurance Premium Financiers of Australia (IPFA) has calculated the $2-$3 million loss using standard cancellation rates across the industry.

IPFA Chairman Bob Dodd says it is not practical for premium funders to exclude the FSL when advancing premiums to help businesses manage their cashflow.

“Should a change of stance not be available, each premium funder has the option of reassessing their own risk profile on this component of lending,” he told insuranceNEWS.com.au.

Although the funders can pursue insureds for the FSL that is not refunded, Mr Dodd says they want to support brokers and are conscious of how difficult it will be for brokers to explain a difficult subject to the already stressed SME market.

Insurers are given a total amount of FSL to pay to the Victorian Government, and if they undercollect in one year they can normally make that up by increasing premiums the following year.

But as this is the last year of the FSL and there is no phasing-in of the replacement property-based levy, the insurers would be out of pocket if they under-collect. They will therefore not refund FSL payments.

Mr Dodd says he understands the insurers’ obligations, but premium financiers will fund and pass on an estimated $80-$100 million of the total FSL amount on behalf of the insurers, via brokers.

“Without premium finance, which is now seen as integral to the industry, cashflow pressures and collection of debt issues increase dramatically for brokers and insurers alike,” he told insuranceNEWS.com.au.

The IPFA has had discussions with insurers and the National Insurance Brokers Association (NIBA) about the issue.

Mr Dodd says that with NSW and the ACT announcing plans to abolish insurance taxes, the IPFA wants to be involved “upfront” in discussions on their transition arrangements.