Affordability of Insurance
One of the issues facing governments, business and home owners is the affordability of insurance.
There are four main reasons for this.
- Investment yields at all-time lows, and so the returns that insurers are making from their investments is much lower than it was before the Global Financial Crisis.
- Catastrophe losses have gone up world-wide. If you went back 10 or more years, catastrophe losses accounted for around 1 -2% of premium income. 5 years ago it moved up to between 3 and 4% now it is more than double that in many jurisdictions.
- Operating costs continue to increase. Wages, which will not be helped by the parental leave impost on larger businesses which includes many of the Australian insurers and of course the scaling up of super contributions again in Australia.
- High levels of tax. The terrorism levy in Australia, Fire Service Levy (“FSL”) in NSW, New Zealand, and Tasmania, Stamp Duties and GST all add to the cost. Some socially responsible governments, the latest being Victoria have removed FSL.
The Fire Service Levy is in the spot light in New South Wales where we are all waiting for the government to announce what they are going to do with it. It is made worse by the tax on tax on tax. (GST on FSL and Stamp Duty on FSL and GST).
New Zealand surprisingly decided to retain their FSL which goes against the advice of economists and just plain common sense. I support the work ICNZ are doing on this and their website http://icnz.org.nz/issues-submissions/issues/affordability-of-insurance/ in particular.
Every community deserves well-funded, resourced and trained emergency service. Everyone in the community benefits from the services and we all should contribute fairly, not those that are prudent and or risk averse and insure. The overtaxing of insurance leads to lower insurance, more under insurance and more stress on government and the economy. This is particularly the case in New Zealand after the earthquake losses which ranks as one of the largest insured losses in history causing base insurance premiums to go up. It is not rocket science and I just cannot understand why governments just do not get it.
Again I congratulate the ICNZ for their efforts in getting the message out there and I urge everyone in the New Zealand insurance industry to get behind this issue and get the message out to voters.