Nearly every day, I hear comments about the cost of insurance and how it is “too high”.  I agree that many policies seem and feel expensive. My vantage point lets me see the proceeds of policies being passed back to policy holders through successful claims.

The next time you see an insurance bill, have a look at the apportionment of the total amount payable. Depending on where the risk is located and the type of policy, you might see;

• The Premium itself (that’s what the insurer gets, excluding the Terrorism levy component.)
• The Terrorism levy (did you know you were paying that? A post September 11 introduction, it is intended to fund claims arising from declared terrorism events. Unfortunately and sadly in Australia, we have had one, the Lindt Café siege. I tried telling a client from regional SA once that they were paying this levy on their home insurance. I won’t repeat what they said.)
• Stamp duty (my biggest gripe, this is a State Government tax (a tax for the legal recognition of a document). Interestingly insurance policies are not actually stamped, and insurance law is actually federal, not state law, so I’m not sure about that one…)
• GST (given that insurance is a service, this makes sense, but it also gets charged on the Stamp duty component. Double taxation?)
• Fire services levy (in some states, this funds emergency services. If you don’t insure yourself, you don’t pay the levy, but if your home is on fire, the fire brigade will still come!)

In states like New South Wales, taxes such as the Emergency Services Levy (ESL) account for as much as 40% of the premiums paid by policy holders.

According to Campbell Fuller of the Insurance Council, all of these extra charges that make up your insurance bill are a significant disincentive for families to properly insure themselves. The taxes add around 70 per cent to insurance policies for NSW small businesses. They also add 19 to 21 per cent to the cost of insurance in most states and territories. “The abolition of unfair stamp duties would immediately slash premiums by 9 to 11 per cent” he adds.

You might be thinking “if these taxes were abolished, would the insurer just price gouge?”  I personally don’t think so. In most classes of insurance, we have strong market forces and a regulator looking at combined ratios of insurer profitability. The Financial Services Royal Commission identified insurers making too much money in select areas, highlighting them for selling “junk policies” where consumers were not getting commensurate benefits for the premiums paid.

Governments are the beneficiaries of this taxation structure, generating significant amounts of general revenue. So next time you get your insurance bill and gasp, takes a closer look at the breakdown. Then, if you feel strongly about the unfairness of the cost structure, you can certainly lobby your local MP both State and Federal. It may encourage better and more comprehensive levels of insurance protection for consumers.

If you’d like to discuss or review your insurance coverage, please get in touch with me or my team at Shield Insurance Brokers Adelaide on 08 8291 2900.