What is the Emergency Services Levy (ESL) and does the ESL mean for strata insurance premiums?
The emergency services levy (ESL), sometimes referred to as the Fire Services Levy or FSL, is a levy on general insurers to fund emergency services organisations in New South Wales.
Most insurers reclaim this amount from their policyholders by charging an ESL with your insurance policy premium. The ESL paid with any premium on a policy is used to fund emergency services in NSW in the financial year in which the policy commences.
This type of insurance levy has been phased out in all Australian states and territories except for New South Wales and Tasmania.
Emergency Services Levy (ESL) vs Fire and Emergency Services Levy (FESL)
The New South Wales Government had planned to replace the emergency services levy with a new property-based levy from 1 July 2017.
The new Fire and Emergency Services Levy (FESL) would have been collected with council rates, instead of from insurance companies.
However, on 30 May 2017, the NSW Government announced its intention to delay changes to how emergency services are funded in NSW. The Government identified that some businesses were unfairly impacted by the new FESL, so the changes were delayed indefinitely.
Why has the owners corporation insurance premium for ESL increased?
In preparation for the intended FESL reform, many insurers varied the rates of ESL charged during 2016-17, in order to reclaim sufficient funds to meet their contribution obligation, whilst reducing the ESL rate to zero by 1 July 2017.
Following the reform deferral, insurers had to re-introduce the levy with little notice, which led to inconsistent levy’s being charged and varied transition periods between insurers. For some owners corporations this meant there was no charge or a reduced charge for the ESL on their insurance premiums during this period.
The re-established emergency services levy has meant an increase to some owners corporation insurance premiums.
Read related: Emergency Services Levy Explained
Why has the owners corporation insurance premiums risen so much year on year
Following a 5-year cycle of record low premiums and massive reductions in insurers total investment income, the insurance industry is beginning to experience a hardening market. Insurers are now implementing strategies to recoup losses. One of which is the increased cost of premiums.
The insurance industry earns revenue from the sale of insurance policies and the investment of premium reserves in bonds, stocks and other assets. In the five years from 2012 to 2017, insurers total investment income reduced from $5.2 billion to $2.4 billion. Investment income was down 18.1% from June 2016 to June 2017.
Source: Australian Prudential Regulation Authority (APRA)
Who decides what ESL I should pay?
Each financial year the NSW Government requires insurance companies to contribute 73.7% of the funding for the fire and emergency services budget. Local councils contribute 11.7% and the NSW Government 14.6%.
Insurance companies generally pass on the costs of their contribution to their customers by charging an ESL on building, contents, motor vehicle and certain other policies. The contribution, by each insurance company, is set by the Government and adjusted according to the insurer’s market share within the year.
Each insurer sets an ESL rate, on your owners corporation insurance premium, it considers will reclaim an amount similar to the contribution it is required to pay to the Government. This means that different insurers may charge different ESL amounts for similar policies.
Read related: False fire alarm strata by-law
Therefore, there is no fixed ESL amount that an insurance company is required to charge each policyholder. Some insurers publish their ESL rate or percentage and you can expect to pay at least 32% on top of the base owners corporation insurance premium.
If you would like further information on the Emergency Services Levy you can visit the ESL Monitor website.
The information relates to NSW only. Some of the above information is subject to copyright.
© State of New South Wales (Emergency Services Levy Insurance Monitor), 2018.