Question on NSW Fire Service Levy
Thanks for your great work & NoTaxOnInsurance website. GIO has billed me Fire Service Levy of $43.77 on a unit contents premium of $218.84. That’s 20%, but perhaps 40% as only one half of GIO’s premium income is counted for the levy. Do you know what the % of the insurer’s premium income is levied?
It looks like GIO may be making a profit out of the levy, by for example, charging 20% of actual premium to me as a levy but paying over as levy to Fire & Service NSW (State Gov’t) say 12%. It would be clear if I knew the billing calculation on GIO for the levy. Is it a simple % of one- half of the insurer’s premium income?
Kevin H [name and email supplied]
I answered as follows:
The way this all works is that the State Government provides an estimate of the moneys that need to be collected to fund the Fire Services. This is operating costs and capital expenditure. In NSW 73.7% is by legislation to be funded by the Insurance industry. The State Government then advises the Insurance Council of Australia of the dollar amount that insurers have to pay.
The Insurance Council of Australia, in turn, engages actuaries to calculate based on expected sums insured and premium rates what rate needs to be charged based on a percentage of base premiums. The rate is different for commercial property, including business interruption and contract works, to home and contents.
The actuaries review their calculation each quarter to take into consideration any movements in the amount the State Government requires, premium rates and sums insured.
At the current time, the rate for Fire Service Levy in NSW is 21% of the base premium. This is down from 23% back in August 2011. The reason for the decrease in the rates is that insurance costs have risen due to all the natural
catastrophe payouts in addition to the normal day-to-day losses. With higher premium rates and the cost of funding the fire services not going up at the same rate for Fire Service Levy has decreased.
The published rate is distributed by the Insurance Council of Australia to all insurers and to my knowledge they all charge the same, but it is possible that some insurers charge more or less based on their own book of business.
I have personally not seen any evidence of any one insurer gouging their clients on the Fire Service Levy. Premiums are so competitive that an insurer would lose market share if they did have a higher rate in this area.
New South Wales, Victoria and Tasmania (commercial risks only) are the only states/territories that still impose a charge on the insurance industry. It is completely unfair and dangerous as it is a tax on the prudent and risk-averse. What happens is that the extra charge, which is made worse by triple taxation with 10% GST on the Fire Service Levy and the Premium, then a further 9% State Government Stamp Duty on the Premium, Fire Service Levy, and GST. The result of this is that is a disincentive for full insurance with some electing not to insure at all, which has a devastating effect in the event of a loss.
A full list of the current Fire Service Levies and Stamp Duties imposed by the various state governments can be found at Table of FSL_and_SD_Rates 10-2-12.
While the NSW rates are high, thank your lucky stars you do not have a business or residential property in rural Victoria. The rates there are obscene.
I believe that the Victorian Government will join the more enlightened states and phase out Fire Service Levies as from 1 July 2012, but we are awaiting anxiously for confirmation from the Baillieu Victorian government.
You can express your own dissatisfaction by writing to your local state member and or signing up on the petition at www.notaxoninsurance.com.
I hope this all explains it all.