Reduce funding of ASIC when the Royal Commission showed up so many problems and risk from natural disasters continuing to be ignored

When I started this blog I did not have any intention of discussing political issues but wanted to focus on general insurance. I am into politics and do not belong to any political party nor do I vote for the same party at each election. I try and make an informed decision based on the promises of each side.

With this background, decisions by governments do impact on general insurance which in turn is there to protect the Australian economy, our communities right down to individual business and home owners.

Last week I was questioning the huge hidden tax that the Terrorism Levy has become.

This week I join the group of Australians who cannot understand why the Federal Government has reduced funding to the Australian Securities Investment Commission at the same time the Royal Commission has uncovered so many problems. I will let you draw your own conclusion.

The other great disappointment in the budget is that the investment in addressing the increasing risk brought about by climate change, i.e flash flooding, cyclone damage etc has been ignored. As a country we will pay for this big time in the long run. If you compare Australia’s investment in this space to Canada’s you can see the leadership required to address this very real issue in our country is way out of step.

Yes there are some good things in the budget but these two issues are of great concern and really do need to be rethought.

We all deserve better than short term politics. We need some statesmanship with a genuine investment, not only our future, but that of our children and grandchildren.

Enough said, hopefully back to some technical insurance stuff tomorrow!

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Which small businesses have mandatory data breach reporting obligations? + 1st Quarter statistics

Another topic I have written a lot on is the Federal Government’s mandatory reporting regime.

I have been asked many times to explain the obligations on small business and so I outline them below. After that I provide some stats at a high level on the first quarter reporting.

From 22 February 2018, the Notifiable Data Breaches scheme (“NDB scheme”) requires a wide range of organisations to report data breaches that are ‘likely to result in serious harm’ to the individuals whose personal information is affected by the breach. They will also be required to notify the Office of the Australian Information Commissioner (“OAIC”).

The NDB scheme applies to organisations that already have obligations to secure personal information under the Privacy Act 1988 (Privacy Act). Generally, this does not include small businesses that have a turnover of $3 million a year or less.

However, there are a few exceptions. Organisations that fall under the following categories will have mandatory data breach reporting requirements, regardless of their size:

  • Health service providers (including, for example, private hospitals, day surgeries, medical practitioners, pharmacists, allied health professionals, gyms and weight loss clinics, childcare centres, and private schools);
  • Organisations that trade in personal information;
  • Credit reporting bodies;
  • Employee associations registered under the Fair Work (Registered Organisations) Act 2009;
  • Organisations that opt-in to being covered by the Australian Privacy Principles under section 6EA of the Privacy Act.

The NDB scheme will also apply to small businesses in these categories that are based overseas if they have an ‘Australian link’.

[ Note An Australian Link generally extends to the overseas activities of an Australian Government agency (s 5B(1)). It also applies to organisations (including small businesses covered by the Act, outlined above) that have an ‘Australian link’ (s 5B(2)). An organisation has an Australian link either because it is, in summary, incorporated or formed in Australia (see s 5B(1A) for more detail), or where:

  • it carries on business in Australia or an external Territory, and
  • it collected or held personal information in Australia or an external Australian Territory, either before or at the time of the act or practice (s 5B(3)).

Further information about entities that are taken to have an Australian link is available in Chapter B of the APP Guidelines.]

Tax File Number (“TFN”) recipients (which is any person in possession or control of a record with TFN information) will also need to comply with the NDB scheme in relation to their handling of TFN information. This means that if TFN information is involved in a data breach, a TFN recipient will be obligated to meet the requirements of the NDB scheme.

Organisations that are not covered by the NDB scheme are encouraged to use the information on notifying individuals under the scheme to create or review their data breach response plans.

Being transparent when a data breach occurs is central to meeting community and consumer expectations. 94% of Australians believe they should be told when a business loses their personal information. Informing individuals about a data breach is one step that organisations can take to demonstrate that they take their responsibility to protect personal information seriously.

And as a practical measure, notifying individuals at risk of harm can provide them with the opportunity to reduce their chances of experiencing harm. For example, individuals can resecure compromised online accounts. This can reduce the potential impact of a data breach overall.

As always, I recommend every business and or organisation to review or develop a business continuity management plan and obtain, and or review their, Cyber Insurance and to discuss the many and varied options available with their insurance broker.

Now to the Ist Quarter reporting stats:

Key statistics from the first quarterly report include:

  • Top five sectors that notified the OAIC of eligible data breaches included health service providers (24 per cent of notifications), legal, accounting and management services (16 per cent), finance (13 per cent), private education (10 per cent), and charities (6 per cent).
  • 78 per cent of eligible data breaches were reported to involve individual’s contact information. 33 per cent were reported to involve health information and 30 per cent to involve financial details.
  • 51 per cent of the eligible data breach notifications received indicated that the cause of the breach was human error. 44 per cent of breaches were reported to be the result of malicious or criminal attack, and 3 per cent the result of system faults.
  • 59 per cent of data breach notifications reported that the personal information of between one and nine individuals was affected. 90 per cent of data breach notifications related to breaches involving the personal information of less than 1,000 individuals.

The key point for me here is that just over half were through human error. No matter what systems we have in place, it is people risk that is our greatest risk in so many areas of our organisations and cyber security is no different!

 

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A Changing of the Guard – Financial Ombudsmen Service (FOS) soon out and Australian Financial Complaints Authority (AFCA) coming soon (1 November 2018)

The Changing of the Guard

The Australian Financial Complaints Limited (AFCL) has received authorisation from the Minister for Revenue and Financial Services, the Hon. Kelly O’Dwyer, to establish and operate the Australian Financial Complaints Authority (AFCA).

Both the Minister (media release) and AFCL have issued a media release, and announced the new members of the AFCA Board. In case you have not seen either, I would advise the following key points.

Under the Minister’s Authorisation, AFCA will commence accepting new complaints on 1 November 2018. All financial firms will be required to be a member of AFCA by no later than 21 September 2018. Ninety-eight percent of current members of the Financial Ombudsman Service (FOS) have already completed the annual assessment and member declaration to ensure a smooth transition to AFCA.

AFCA will, over the next few months, be putting in place the necessary infrastructure, staff and procedures to be ready to receive complaints from 1 November 2018.

In the interim, AFCA will operate the FOS scheme and will deal with any existing FOS disputes under the current FOS Terms of Reference. The operations of FOS, including staff and members will be transferred to AFCA.

The AFCA Board will also continue working with the Credit and Investments Ombudsman (CIO) Board on the necessary arrangements for a transfer of its members and operations to AFCA. There will also be ongoing collaboration with the Superannuation and Complaints Tribunal (SCT) during the transition process.

Next steps

One of the early actions of the new AFCA Board is said to be to consult stakeholders, including current FOS members, CIO members and superannuation trustees, relevant industry bodies and consumer organisations, on the proposed AFCA terms of reference (to be known as the Rules) and on an interim funding model for the new scheme.  I will write over the next month with further information on these consultations which are currently planned to commence in June 2018.

An interim AFCA website – www.afc.org.au –  is already up and going to enable the Authority to provide regular information and updates on the commencement of AFCA, including information about consultation on the AFCA Rules.  Information is also available on the FOS website.

It is reported that a full service AFCA website will be ready by the commencement date of 1 November 2018.

If anyone has any questions regarding membership of Australian Financial Complaints Authority or any other questions regarding AFCA commencement, it is recommended you call them on 1800 931 678 or email membership@afc.org.au.

For my part, I will watch the new organisation with interest. General Insurance is so complex and many of us fear that well established legal precedents including the application of the Insurance Contracts Act will not be followed as we have seen far too often of late in the current organisation when those making the decisions are not sufficiently trained or experienced in the industry. With a mega body handling so many different types of financial products this issue may get worse not better.

The second issue is, will the new Authority publish the data on complaints that FOS currently provide annually? This is an important service that I for one would hate to see disappear or get mixed in with a bigger unintelligible report in the new mega Authority.

But to be fair, we need to all give the new Authority every chance and we wish them every success in their very important role.

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Changes to the New Zealand Residential Tenancies Act and to PolicyComparison in Australia on methamphetamines.

The Residential Tenancies Amendment Bill (No 2) has just passed the Select Committee stage of the New Zealand legislative process. The Bill will change the Residential Tenancies Act (1986) in ways that will affect general insurers in the following areas:

  1. clarifying the state of the law regarding tenants’ responsibility for careless damage to property, including insurers’ rights of recovery;
  2. requiring landlords to disclose information about their insurance arrangements to tenants; and
  3. setting rules for testing properties for contaminants, including methamphetamine.

I will be watching carefully the final outcome of the process as I see rules for testing properties for methamphetamine being mandatory here. This as I have reported on a few times is becoming a big issue in Australia.

Following my last post, my colleagues at LMI PolicyComparison.com conducted a review of our existing Landlords comparisons to see whether any addressed this. She found that currently only  2 policies provide cover for Chemical Contamination. One had  a sub-limit of $20,000 and the other $10,000.

Currently this is being shown under the “Additional Information” section of our comparison.

They then carried out a full review of all the Landlords wordings to see whether any one else offered similar cover and found that they don’t and none of them had specific exclusions relating to it.

As a result to assist users of our comparison service the team have added a new cell into our existing comparison template so that we can show the cover offered.  The cell is to be called “Chemical Contamination – Manufacturing Storage or Distribution of Any Controlled Drug” as the cover does not specifically mention methamphetamine’s but rather any controlled drug. Most Landlords wordings have a broader exclusion for pollutants which can include chemicals and we currently have an Exclusion cell for “Pollution other than Involving Animals, Terrorism or War and Nuclear Activities” in which we detail these exclusions.

The team did not stop there and checked the Home and Contents comparisons and wordings to see whether this is addressed anywhere in them and found that none of them have provided cover for chemical contamination. This did not surprise me as an occupier should know what is coming into their  house and if they allow such substances, it would be unfair to have the insurer pay for the clean up.

Regarding chemicals, the review showed that there is usually an exclusion for pollutants, which can include chemicals, and we put this in the existing exclusion cell – “Pollution other than Involving Animals, Terrorism or War and Nuclear Activities”. Chemicals are also commonly excluded when it comes to (a) Any process of cleaning involving the use of chemicals other than domestic household chemicals and/or (b) Contamination by chemical and/or biological agents, which results from an act of terrorism. Neither of these relate to the cover we are talking about.

The most common exclusions relating to drugs are:

  • Any property illegally in Insured’s possession stored in a dangerous and illegal way or any equipment connected with growing or creating any illegal substance
  • Liability arising from or in connection with or involving committing or attempting to commit a criminal offence including the manufacture distribution and/or supply of illegal substances or drugs
  • Liability and loss or damage when Insured is under the influence of an illegal substance or drug or loss or damage was caused or contributed to because Insured possessed supplied or consumed illegal substances or illegal drugs
  • Insured’s possession supply manufacture or consumption of any illegal substances or illegal drugs

We currently have an exclusion cell for “Use of Alcohol or Drugs” in which we place all the above mentioned exclusions.

I may offer more comment when the New Zealand Legislation goes through and or after we have completed a similar review on LMI PolicyComparison.co.nz comparisons.

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NSW introduces new laws to curb the serious issue of distracted drivers

I have posted several articles over the past few years on the very serious issue of people texting and generally being distracted by their mobile devices while driving. One post covered the terrible case where in February this year, a 22-year-old man, who allegedly took his eyes off the road for up to 20 seconds to use his phone, seriously injured two policemen setting up a random breath test. That 20 seconds of mobile phone use in a car travelling at 60km/h was equivalent to driving blind for 330 meters, Parliament was told. As a result, one of the police officers had part of his leg amputated. See http://www.allanmanning.com/phones-and-driving-do-not-mix/

Even on Saturday as I drove out of my own street onto a round about, I was nearly involved in a collision with a driver who was clearly not watching the road. Thankfully my wife and I could see the driver was not watching the road and we avoided the certain collision.

I therefore welcome the new measures taken by the New South Wales government to curb this very real problem. That is, people simply do not realise their addiction to social media, text messaging and emailing is putting people’s lives, including their own, at risk. This is despite more than 40,000 people being fined by NSW Police for illegal mobile phone use in the 2016-17 financial year.

In trials by One Task, a Sydney technology company, of speed cameras to spot illegal use the cameras detected more than 400 Sydney-siders using phones illegally in a 12-hour period.

NSW will be the first place in the world to introduce speed-camera-style technology to detect and crack down on illegal mobile phone use by motorists and while it will no doubt have a revenue benefit to the government, I do believe the primary reason for the new laws is to reduce the numbers of people killed or seriously injured on the road.

The new rules have been passed by NSW Parliament and they also extend to mobile drug testing which will now include cocaine and tougher penalties for drivers under the influence of drugs.

While motor vehicle policies have an exclusion for drivers being under the influence of alcohol or drugs, only a few have introduced exclusions for texting while driving. While I strongly support such an exclusion, I think it should be in line with the under the influence exclusion and still protect the owner of the vehicle but make the driver ultimately responsible for their dangerous actions.

 

 

 

 

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Are fines imposed on SME’s for data breaches fair?

As from 23rd February 2018 legislation now requires that Australian businesses report data breaches.

I have heard that there have already been an average of 10 notifications a week but this figure was on social media and I have not been able to verify the number.

I appreciate that we all have a duty to protect the personal data of our customers and employees but I question whether fines  imposed on any company that is breached is fair and reasonable.

Today the news is all abuzz about how Facebook was hacked. There have been reports of countless hacks of major international businesses and even sensitive government departments.

The issue is what is reasonable has been mulling around in my head for a while. It started last year, when LMI’s head of cyber security presented a board paper seeking an upgrade of our company’s security and seeking additional funding to cover the introduction of new software solutions. As we take cyber security very seriously all the recommendations were adopted and the capital expenditure approved.

A few weeks later I was meeting with a new client and in passing they advised that they had upgraded their security system and had spent exactly 50 times more than we had. Admittedly the client was an insurer with a much greater turnover, much larger customer data base and one would therefore think greater exposure. Having said this, the amount they had spent was greater than the gross profit of our organisation. As such it simply was not feasible for us to mirror their efforts.

Having said that, the same hacker could be targeting LMI as them and despite what to us was a significant expenditure I have to think we will be more vulnerable than the insurer.

I am also concerned about the number  of SME’s that are using the services of cloud based services such as Zero and MYOB’s new accounting systems. Employee data can be held here and the question is who would be fined if there was a breach of the cloud provider?

The other point that I would make is that after attending a number of conferences and hearing a number of computer security experts who carry out penetration testing, I am of the firm opinion everyone has been hacked but they have so much data already collected they have not used it as yet. The infographic at the end of the post shows the number of reported breaches during the first half of 2016, If you compare this to 2017 first half figures of 1,901,866,611 reported data breaches, you can see the massive increase (343%) in just one year.

The point to keep in mind is that in some countries, including Australia, during this period did not have to report breaches and so the figures are not complete.

With this background, I question is levying a fine on an organisation that has taken reasonable steps within their budgetary constraints fair and reasonable. Or is it just another form of hidden taxation on SME’s?

The reality is that reporting of breaches is now mandatory and the penalties for not notifying a breach are correctly more serious. Therefore businesses that do suffer a breach need to report it immediately.

If fines will ensure then every business needs to rethink their attitude to cyber insurance and if they do not have the cover consider obtaining the protection and of course making sure that it provides cover for any fines or penalties.

While PolicyComparison.com does provide a detailed summary of the features and benefits of the majority of cyber policies available in Australia, it is my recommendation to any organisation looking for cyber insurance to obtain the advice of an insurance broker to obtain the right insurance protection for them.

This is a class of insurance that is changing rapidly and as with the cyber security itself it is not a set and forget issue. Both cyber security and the protection afforded by cyber insurance protection needs to be reviewed constantly, the later at least each renewal.

 

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NSW Government continue to bend the facts to hide their ineptitude.

Like all rate payers in New South Wales, I received this (image) flyer from the New South Wales Government on the emergency services levy.

I cannot accept that deferring the levy is going to help those that are currently bearing the cost of funding the fire and emergency services.

Fact 1: everyone in New South Wales benefits from having an efficient, well funded, well trained and equipped fire and emergency services.

Fact 2: the men and women that do this work deserve our full support for doing some of the most dangerous and stressful work in our society to protect all of us and our property.

Fact 3: it is completely unfair that only a percentage of the community bear the bulk of the cost and not everyone.

Fact 4: by deferring the changes, it means that those that insure go back to bearing the brunt of funding the fire and emergency services.

Fact 5: this, in turn, means that to avoid paying the levy people do not insure or do not insure fully. Putting an even greater burden on the prudent and risk averse who insure fully.

Fact 6: Currently, the Fire and Emergency Services means that many insurance policies are 40% higher in New South Wales than say Victoria. If you add the triple taxation of Goods and Services Tax being imposed on the Fire and Emergency Services and then the State Government Stamp Duty on insurance premiums, Fire and Emergency Services Fees, and the GST component any fool can see the inequity of having the levy on any product or service.

Fact 7: Every single study on Fire and Emergency Services shows that the fairest way for the community to fund the service is to have as broad a tax base as possible. This is property rates where everyone pays, whether you are a tenant or an owner occupier.

Fact 8: In 2012, the New South Wales Government issued a White Paper and called for input from the community on moving the levy away from insurance, rightly pointing out that it was inequitable in the current form. This means the NSW government have had 5 years to get this right as well as the benefit of consulting with all the other mainland states who successfully made the transition from insurance to property rates.

Armed with these facts, I am sure that you will agree with me that this is a monumental and inexcusable balls up by the New South Wales government.

I am pleased to see the issue is getting some time in the Sydney Morning Herald  which sheds more facts on the waste involved here and how the new levy was so wrongly calculated. For a home owner who fully insures it should logically have gone down with the broader tax base.

We cannot put the toothpaste back in the tube but what we need is some honesty on the part of the Government that they and only they got it wrong and secondly an honest time line as to when the reforms will be implemented.

My guess is that it is in the too hard basket for this government, that is, it is beyond their ability and that we may be stuck with it for another generation.

Of course, this is not the only issue this government has failed us on. The water issue from the Murray Darling is a complete story of failure in itself.

We all deserve better!

 

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Why do governments bury their heads in the sand?

I originally set this blog up to address insurance questions but more and more I seem to be questioning the attitude and lack of leadership of governments on a wide range of issues.

The fact is that as the insurance industry is there to pick up the financial effects of loss, injury and disruption, then what governments do and do not do effects insurance and those that purchase the protection.

The latest issue that has me shaking my head is the decision of the Tasmanian and Northern Territorial governments allowing water treatment departments and/or companies not to participate in the collection of wastewater samples.

Why is this important? The samples taken provide information on drug use. Drug use effects our economy and those that live in this country in a wide range of ways from increased car accidents, burglary and other similar crime rates, work place injuries etc.

While the Program is intended to provide a national picture of drug use, regrettably, during the period covered by the latest report the operators of wastewater facilities in Tasmania and the Northern Territory declined to participate in the collection of wastewater samples.

Who are they kidding by burying their head in the sand. You cannot improve something that you do not measure. It really is a disgrace.

What we do know, from the latest report, is that Perth has finally shaken its tag of Australia’s methamphetamine capital, with a report showing that Adelaide residents are now bigger consumers of the drug.

The Australian Criminal Intelligence Commission (“ACIC”)’s findings were based on tests in October and December’16, and February’17 at wastewater treatment plants, which showed Perth residents consumed about 40 doses of the drug for every 1000 people each day, just above the capital city average of 37 doses a day.

Adelaide recorded about 60 doses a day — or more than 1½ times the national average. The Perth figure had almost halved since October last year when the consumption rate peaked at almost 80 doses a day, the highest for any capital city.

The ACIC’s report showed that meth remained the most widely abused illicit drug in the country, but use had been falling.

As the ACIC stated about Tasmania and Northern Territories decision to opt out of the wastewater sample collections: “This is disappointing as it limits our understanding of trends and emerging issues in those jurisdictions and the ability to compare current findings with those published in the first report.

On top of our appalling investment in risk mitigation, the withdrawal of funds to the national anti-theft task force by Victoria and the ongoing stuff up by NSW on Emergency Services Funding, we clearly need a change of direction at all levels of government for the good of society and our economy.

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Whinge or fix it: that is the question!

I wrote at the time how disappointed I was that the Federal Government only earmarked a token $26.1 million towards disaster mitigation for the Federal Budget in 2017-2018.  (To get the benefit the states have to match this dollar for dollar).

At the same time Federal and State politicians are complaining about the high cost of insurance.

Rather than genuinely address the problem, the insurance industry is again being demonised with the Federal Government announcing in the same budget that $7.9 million will be spent over 4 years to enable the Australian Competition and Consumer Commission (ACCC) to monitor and report on prices, costs and profits in the northern Australia insurance market. This is despite the fact the Auditor General’s reported stating that insurance in Northern Australia has been historically under priced. I would argue that this $7.9 million would be better spent in disaster mitigation albeit a drop in the bucket of what is really needed to protect our communities and economy, not to mention individual households and businesses. 

Parking one of the major issues, that being the high level of government taxation on insurance for a moment. But before I do, I did hear that President Trump is planning a trip to New South Wales. His logic is that it is the only state in the world where the leader is more incompetent than he is proving to be. At least he could get the Emergency Service Levy right! – This of course could all be “fake” news.

Anyway, moving on, let us compare Australia’s spend with say what Canada invests in their Disaster Mitigation and Adaptation Fund.

While we plan on spending $26.1 million they plan on spending $2,000 million. That is Canada is spending 76.63 times as much! As a graph, it looks like this!

Yes they are marginally bigger in land mass:

and yes they have about 1/2 as many people again

 

Joseph de Maistre wrote: Every nation gets the government it deserves.  I disagree. Australia deserves better!

Perhaps we could reinstate 457 visas specifically for Canadian politicians to come and show us how to run a government.

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Another broker angry at the NSW Government

I received this email last night and it mirrors many phone calls and emails I have received.

“The NSW ESL Insurance Monitor has now gazetted a new Section 30 Notice which requires premium comparisons to be provided with renewal invitations and renewal schedules for residential property insurance in NSW from 1 July 2017.”

At what point does the State Government pull their head in & stop meddling in our Industry; specifically in areas that really have nothing to do with them?

Sorry to sound aggressive Allan. It’s just that, if consumers don’t like their renewal premium, they already have ample facilities at their disposal to shop around.

Further, this outrageous new “requirement” is totally disingenuous and simply propagates comparisons on price alone. It just isn’t a good look.

Where is the Government’s warning to review the quality & extent of cover, at the same time as comparing cost?

Thanks Allan – Gary. [surname and email provided]

I could not agree more. I seem to be constantly writing to politicians, most recently Nick Xenophon explaining that insurance is not about price. It is about protection and that is what the New South Wales government completely forgets. No one remembers the price of insurance when they have a claim occur.

What they want (and need) is coverage that indemnifies them for their loss or damage and has a sufficient sum insured, limit or sub-limit high enough to meet the cost. On top of this they look for a fair and reasonable claim service that is proactive and does not take a delay, deny, defend approach.

If anyone can get all of this in one policy and assure me that insurer will not have gone to God when I need them sign me up!

Let us see this for what it really is. The New South Wales government completely messed up the transition of Emergency Services Levy from the insurance industry where it has not been in Queensland since 1985 (nor in UK since the mid 1880’s) on to property rates where it ought to be so that all the community pay it. How they messed it up when they were the last state, is beyond my comprehension and one of the best examples of incompetence in government I have ever seen. How can anyone trust them after this.

One of the oldest political tricks in the book is to move the focus off your own failings and divert it elsewhere. We are constantly being demonised by the press and government and an industry who is incapable or unwilling to fight back, so we become the fall guy and the whole nonsense with the appointment of an insurance monitor who of all people should know better is showing examples of price differences between policies that are chalk and cheese.

I think every broker and insurer should comply with the request but also show just how much the New South Wales is taking of the total cost of insurance and in particular the completely unconscionable tax on tax on tax where the New South Wales Stamp Duty on insurance is a 10% on the premium, the Emergency Services Tax, and the Goods and Services Tax (“GST”), with the GST being applied to both the premium and the Emergency Services Tax. So it becomes triple tax.

If the New South Wales Government were genuine about making insurance more affordable, which only helps protect their citizens and economy by the way, then remove the taxes which is adding over 20% to the cost of home, home contents, and business property and business interruption premiums.

PS: I would also add a how to vote for one of the opposition parties in the same envelope if they gave a commitment to remove the Emergency Services Levy from insurance.

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