Blog Question on Fire Service Levy increase

fsl taxI received this question from an insured who is concerned about the Fire Services Levy, to be correct the Emergency Services Levy. I have withheld the name of the insurer as is my normal practice.

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I received my home and contents insurance renewal for a policy dated 7/11/16. The Financial Services Levy (“FSL”)  included was $181.85 (estimated by [my insurer]). Along with a letter explaining that the FSL would cease on 1/7/17 and be paid with your Council rates. Compared to last year, the FSL had increased by 23% and if charged, would actually for the period up to 1/7/17 where it would be abolished, it had increased 85%. My premium had not changed materially.

I called [my insurer] to query why the FSL had increased and was told it was a Government charge and they just pass it on. The percentage rate used by [my insurer] in 2015/16 was 18%  and 2016/17 it had increased to 23%.

I was told to contact the Department of Fair Trading insurance monitor, which I did and was told that there had been no increase in the FSL rates and that the insurance company set their rates.

I called [my insurer] back and said I thought the increase was excessive and was again told that it was a Government charge. But also that the $181.95 may be for the whole period of the policy to 7/11/17 and not pro rated. I said that this means that not only have [my insurer] increased the premium but also that they were going generate extra profits but not passing on the savings for the period after 1/7/17.

The call centre and their supervisor could not provide any better explanation.

I have passed my complaint onto the Insurance Monitor DFT, but wonder how many other customers have simply paid the increased FSL without questioning the huge increase in charges.

Regards

Peter [surname and email provided]

I replied as follows:

Hi Peter,

The whole system is quite complex and I feel that the transition which should have been handled as you suggest as a sliding scale on a pro-rata basis has not been followed by the NSW Government as it was with all the other main land states, except Victoria.

I see that the base premium went slightly up from your email but if that went down the amount insurers have to pay as a proportion of the premium has to go up. The amount each insurer pays is also based on the market share of each insurer.

As I say it is a very complex issue and I cannot work out the correct amount that should be charged/paid without an extraordinary amount of additional data.

It would be prudent, I feel, if Insurers did provide some basic training to their call centre supervisors on the makeup of the charge so that you did not have to play telephone tennis ringing back and forward as you have done.

What I would strongly suspect is that insurers will a) not want to be fined nor b) have their reputation damaged therefore they will be as accurate as possible on the amount of the levy charged and if anything be conservative.

Clearly you are concerned and by reporting your concern to the official monitor I am sure the matter will be reviewed and any adjustments that may be necessary will be done.

From my own perspective, as someone who has property in New South Wales, I will be glad when the whole transition is over with and the charges are collected through rates as then everyone in the community who benefits from the emergency services helps fund it and not just people like you and I who are prudent and risk averse and take out insurance. With around 1 in 4 homes and units not having contents insurance, for example, the current way of collection is clearly not fair.

Thanks for sharing your concern. The good news is that this will be the last year of it being linked to your insurance.

Regards

Allan

 

One response to “Blog Question on Fire Service Levy increase”

  1. Daniel says:

    I just called my house and contents insurer about the same issue and the call centre operator had the same response – ie no clue but blame the government.

    Commercial lines insurers are progressively reducing the FSL rate each month in the lead up to July 1 which is a fair way of doing it because it better reflects the real liability.

    Personal lines insurers will keep charging the full rate (which has increased since last year) until July 1 making a tidy profit along the way, because they know they can get away with it because their average customer has no clue about FSL and generally do not seek advice from a broker.

    Since commercial lines and personal lines are often done by the same companies this is obviously a deliberate strategy to gouge profit from personal lines customers.

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