The New South Wales Emergency Services Levy will be removed from home insurance premiums as part of a reform plan announced by Premier Chris Minns to fix the “unsustainable” system.
The change would reduce the cost of insurance premiums, which the government hopes will encourage more people to insure their homes in the face of greater fire and flood risks.
Under the current system, the emergency services are funded by a tax on home insurance premiums, meaning only those with insurance pay.
Minns said the reform would not be easy, but was 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 in the state have no home and contents insurance.
The plan would introduce a statewide contribution to fund emergency services, recognising that natural disasters affect everyone in NSW. No further details were available on Thursday morning.
State Treasurer Daniel Mookey said reforming the levy would help ease pressure on household budgets, but would not be rushed.
“Far too many homeowners are at risk of leaving their biggest asset uninsured because of rising costs,” he said. “The NSW Government will begin consultation with industry and the community. This is not a reform that can be rushed – it’s too important.”
The government has described the funding of fire and rescue services as “complex, inefficient and unsustainable”.
As it stands, policyholders pay almost three-quarters of the levy, local councils pay 11.7% and the national government contributes 14.6%.
According to government modelling, the levy is estimated to increase the cost of household insurance by an average of 18%.
Former NSW Premier Gladys Berejiklian attempted to reform the levy more than five years ago, but the plan was scrapped in 2019 after a fierce backlash from councils. Councils warned at the time that increasing the levy would force them to cut services and facilities.
Insurance Council of Australia chief executive Andrew Hall described the former government’s attempt as a “spectacular policy failure”, but said he was hopeful the new plan could work.
He expected insurers to pass on the full savings to consumers as soon as possible.
“The problem for insurers in NSW is that we are not getting enough people to buy home and contents insurance,” Mr Hall said. “We need them to be cheaper. We need more people in the pool, so it’s actually in the industry’s interest to make sure the full benefit is seen by consumers.”
Drew MacRae, senior policy officer at the Financial Rights Legal Centre, said it was important that the change was independently monitored.
“A key element that needs to be part of the reform is the establishment of an independent price monitor to ensure that insurers are doing the right thing by their customers in implementing this reform,” he said.
Business NSW Chief Executive Daniel Hunter welcomed the reform, which he said, if implemented, 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 closing their doors for good – 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.”
