The New South Wales emergency services levy will be cut from home insurance premiums as part of a reform plan announced by the premier, Chris Minns, to fix the “unsustainable” scheme.
The change would lower the cost of insurance premiums which the government hopes would encourage more people to insure their homes in the face of greater fire and flood threats.
Under the current system, emergency services are funded through the tax placed on home insurance premiums, meaning only those with insurance pay.
Minns said reform was not easy but the “right thing to do”.
“For too long this has been in the too-hard basket for NSW,” he said on Thursday. “But as we face the threat of more natural disasters we have a significant opportunity to make the system fairer [and] more sustainable for the future.”
More than 17% of households across the state do not have home and contents insurance.
Under the plan, a state-wide contribution would be introduced to fund emergency services, recognising that natural disasters affected everyone in NSW. There were no more details provided on Thursday morning.
The state treasurer, Daniel Mookey, said reforming the levy would help ease the burden on household budgets but it would not be rushed.
“Far too many homeowners run the risk of leaving their biggest asset uninsured because of soaring costs,” he said. “The NSW government will begin consultation across industry and the wider community. It’s not a reform that can be rushed – it’s too important.”
The government has described thfunding of fire and emergency services agencies as “complex, inefficient and unsustainable”.
As it stands, policyholders pay almost three-quarters of the levy, local councils pay 11.7% and the state government contributes 14.6%.
According to government modelling, the levy is estimated to increase the cost of household insurance by 18% on average.
The former NSW premier Gladys Berejiklian tried to reform the levy more than five years ago but the plan was dumped in 2019 amid fierce backlash from councils. Local councils at the time warned increasing the levy would force them to cut services and facilities.
The Insurance Council of Australia chief executive, Andrew Hall, described the former government’s attempt as a “spectacular failure of policy” but was hopeful the new plan could work.
He expected insurers would pass the full savings on to consumers as soon as possible.
“The problem for insurers in NSW is we are not getting enough people to take up home and contents policies,” Hall said. “We need them to be cheaper. We need more people in the pool so it’s actually in the industry’s interests to make sure the full benefit is seen by consumers.”
Financial Rights Legal Centre senior policy officer Drew MacRae said it would be important for the chnage to be independently monitored.
“One key element that must be a part of the reform is the establishment of an independent price monitor to ensure that insurers do the right thing by their customers when implementing this reform,” he said.
The Business NSW chief executive, Daniel Hunter, welcomed the reform that he said, if executed, would significantly reduce the cost of insurance premiums and protect small businesses.
“There are thousands of mum and dad businesses that are one disaster away from shutting their doors permanently – all because they simply can’t afford insurance,” he said.
“We simply can’t afford to let the weather or other surprises decide which businesses stay afloat. When businesses thrive, we all thrive.”
