In 2017 the New South Wales Government deferred the introduction of the Fire and Emergency Services Levy (FESL), a reform that would have removed the insurance-based Emergency Services Levy (ESL) and introduced a property-based FESL payable by land rates from July 2017.
Funding will now continue to be sourced from a levy on insurance premiums, through the Emergency Services Levy. These changes have left consumers and commercial and industrial property owners wondering what this means for them and their insurance policies.
The Fire and Emergency Services Levy was never introduced, but from March to August in 2017 many insurance policies – mainly property insurance – had the levy removed. This resulted in many policy holders receiving a reduction in their insurance premium. After August 2017 insurers were forced to reinstate the levy at an average rate of 36 per cent, which affected some policies that had previously attracted no levy charges.
If you had a property insured under a policy that was due for renewal in June last year, the premium would more than likely have had nil (to minimal) FESL included. But if that same policy
falls due in June this year, it will be subject to the FESL. This will be further compounded by GST, stamp duty and any increase the insurer may put on the premium.
Businesses that own commercial property which they either trade out of or have as an investment are subject to the FESL rates. Personal property such as your own residence, holiday home, investment, farm or strata properties will also be subject to FESL rates, although these potentially may be calculated at a lower average rate of 19 per cent.
Be aware that the FESL rates are subject to change as each insurer sets their own rate to comply with the amount set by the NSW Treasurer and collected by Revenue NSW. At the time of writing the average rate for commercial property is 36 per cent, while residential property is 19 per cent.
Example of the kind of increase insurers can expect this year:
The difference is $51,131.72.
This could create a price shock for insurance purchasers who are unaware of having benefited from the lower costs last year and who may be expecting their insurance premiums to remain similar or rise only slightly on their next renewal.
What does this mean for your insurance?
The reintroduction of the levy may result in significant price increases for some policy holders, particularly because premiums are also rising due to current market conditions. The cost of the levy has to be factored along with increases by insurers as a reaction to the low interest rate environment affecting their profit margins, and an increase in the number of claims ‒ not just locally or nationally, but globally ‒ which have also impacted insurers’ profitability, contributing to the cost pressure on managing claims.
Insurers should at the least expect a re-rating of their situation, based on claims history for their business activity.
It is strongly recommended the policy holders take a proactive approach by talking to their insurance broker about the reintroduction of the levy and how this will impact the cost of their insurance.
A Novocastrian with 25 years’ experience in the financial sector in the Hunter region, Mark Bramley is Area Director at Gallagher, Newcastle, an international insurance brokerage with branches across Australia.