Update on Emergency Services Levy and insurance

The SCA (NSW) Policy and Legislation Committee is advising members about the change of heart by the NSW Government regarding the collection of the Emergency Services Levy (ESL), following the re-instatement of the previous legislation. This means that the ESL will again be collected via insurance premiums. The change does, however, allow for the transfer of the ESL back to the land tax model so at present it is deferred rather than abolished.  The reversal became effective from 1st July 2017, which means that insurers are once again responsible for the funding of the NSW emergency services.

This is an important fact to remember because while the requirement has been reinstated from that date, insurers have already prepared and issued renewals for at least 8 to 12 weeks in advance, this means the commencement of the collection of the levy did not occur on that date.

In addition to this, the calculation of the levy is retrospective in that the basis of the collection is arrived at by actuarial analysis during the year of what proportion of premium needs to be collected to arrive at the correct amount by the end of the financial year. As such ESL amounts tend to vary following a quarterly review.

Therefore, as stated previously, if the insurers have not collected any levy for the first few months, it will need to be accounted for at some stage so the impact to premiums moving forward could potentially escalate significantly starting with a complete reversal of the predicted 20% to 30% discount promoted by the Emergency Service Levy Insurance Monitor. We predict that the ESL will return to the market in late August or early October depending on where insurers are in their respective renewal cycles.

It should be noted the original section 30 notice has become redundant, but the ESL Monitor remains with the role of the Monitor transitioning from a consumer advocate appointed to “protect the interests of the consumer” (that is, overseeing the insurers behaviour during the transfer) to monitoring their behaviour to adhering to the status quo.

The Monitor still has significant power and can fine insurers up to $10 million for “misleading policyholders or charging unreasonably high insurance premiums”. Whether this can be effectively translated into real-life scenarios will be a matter of some conjecture as insurers have been able to clearly demonstrate that they are not meeting shareholder expectations on returns based on rising claims costs and reinsurance costs.

At the time of writing it appears that the new section 30 notice that was issued by the Monitor on 2 June 2017 that related to showing the prior year’s premiums on renewal notices has been withdrawn. It may be something that the market eventually adopts as it has also appeared as a recommendation under the recent General Insurance Code review..

We will provide further updates as they become available on this matter.