Greatest gift: ESL delight, but history dictates caution
The NSW Government’s surprise announcement that it intends to ditch the inequitable Emergency Services Levy (ESL) was an early Christmas present for an insurance industry battling increasing affordability woes.
And it’s no stocking filler – this will have a significant impact. The Insurance Council of Australia (ICA) estimates that the ESL adds 18% to home premiums and as much as 30% to commercial premiums, in a state where underinsurance is rife.
NSW is the last mainland state or territory to impose a levy on insurance premiums to fund its emergency services, and will be the only one full stop if Tasmania faces down opposition to its reform.
The insurance industry has been arguing for decades that the tax is unfair, inefficient, and worsens underinsurance – and it’s been backed by almost every review that’s looked at the issue.
Emergency services need to be paid for, of course, but it makes no sense for a levy to be tacked on to insurance. Premiums are expensive enough already, and those that don’t insure get away without paying for services which benefit everyone.
To finally hear Premier Chris Minns commit to reforming the “complex, inefficient and unsustainable” levy will have been music to industry ears.
But we’ve heard such promises before.
In late 2015 the industry was celebrating in similar fashion after the Gladys Berejiklian government confirmed it would replace the ESL with a property levy.
Some 18 months later the dream had turned into a nightmare as groups opposed to the new setup forced an eleventh-hour rethink.
“While the new system produces fairer outcomes in the majority of cases, some people – particularly in the commercial and industrial sectors – are worse off by too much under the current model, and that is not what we intended,” Ms Berejiklian said.
The reform was put on hold – and effectively scrapped – in a dramatic u-turn that angered the insurance industry. Insurers and brokers were already a long way down the road to adjusting systems and processes to remove the levy. Much time, money and effort had been wasted and chaos reigned while the levy was reinstated.
Once bitten, twice shy – so it’s not surprising to see the tone of comments on insuranceNEWS.com.au’s LinkedIn post.
“I’ll believe it when I see it.” “No backflips this time hopefully.” “Hallelujah! Let's see if they stick with it this time around.”
While that caution is understandable, it’s hard to see history repeating itself.
The Minns Government says it has learned from its predecessor’s mistakes, and so far there’s been very little opposition to the move, with strata, business, local government and consumer groups lining up with insurers and brokers in support. The Federal Government is also right behind the reform.
Even if some critics emerge further down the track, the NSW Government’s announcement and Premier’s speech contained very definitive statements that it would be extremely hard to row back from.
“The Government will remove the Emergency Service Levy from insurance and apply it instead to property in the state,” Mr Minns said, adding that the ESL “represents a massive disincentive to taking out insurance”.
It won’t be plain sailing, however. As in the previous botched reform there will be a monitor making sure insurers pass on savings to customers as the levy comes off.
Whether or not former Australian Competition and Consumer Commission Chairman Allan Fels will be approached for the role, or would accept it, is at this stage unclear. But whoever holds the position will most likely approach the task in combative fashion.
And it’s not a reform that can be rushed, the Government says.
“The Treasurer will lead consultations with industry and stakeholders on this important reform, including issuing a discussion paper in the coming months to facilitate this consultation process.”
So, while insurers have been promised a gift that’s been top of their list for years, they’re not allowed to unwrap it just yet. It might even take years to be delivered.
And while those nagging doubts remain, the industry will be tracking progress very closely.