ESL confusion: landlords set to pay the price

Warning Sign

The decision of the NSW Government to indefinitely defer the way the ESL is collected is expected to result in property owners facing higher insurance premiums.
 
Instead of property owners getting ready to enjoy lower insurance premiums, they now face the possibility of higher costs as the NSW State Government delays changes to the way the Emergency Services Levy (ESL) is collected.
 
The ESL funds services like Fire and Rescue NSW, Rural Fire Services and the NSW State Emergency Services. Emergency services are funded through State contributions (14 per cent), local government contributions (11.7 per cent) and levies on privately held insurance, mainly for building and contents insurance policies (74.3 per cent).
 
The ESL is currently collected by insurers on behalf of the NSW Government and is included as part of NSW Home, Motor and Fire and Industrial Special Risks insurance policies. The Government had proposed to remove the ESL from being collected through this insurance and instead be replaced by a Fire and Emergency Services Levy (FESL) to be paid alongside local council rates (the rate would be based on the unimproved land value). The change was set to take place from 1 July 2017 (it had been legislated in March).
 
A month before the change was to come into effect the Government announced an indefinite delay to the plan. In announcing the deferment, the Premier noted that the change would have made the ESL system fairer for residential property owners but would not have been fair on small-to-medium size businesses or those in the commercial and industrial sectors. 
 
The proposed FESL would not only see a change in the way the monies were collected, but would see all property owners paying the levy, including those whose property is uninsured. In effect, all property owners would be contributing to the costs of emergency services provision, not just those who had taken responsibility for protecting their property through insurance.
 
The Insurance Council of Australia (ICA) expressed concern over the delay, stating that “insurance companies are shocked and disappointed” and that the decision “will continue to deter the community from taking out the insurance”. Many in the industry considered the ESL a disincentive for full insurance.
 
Until the Government determines the way forward, the ESL will continue to be collected by insurers in NSW. From an insurers’ perspective, the continued collection of the ESL poses a logistical and technical challenge that comes with significant costs – costs that will ultimately passed on in full to policyholders, according to the ICA.
 
The Insurance Monitor will oversee the continuation of the existing system as the State Government works with the insurance industry, local government, fire and emergency services and other stakeholders to determine a new approach.