For the year ended 30 June 2008, the Australian general insurance industry paid out $14,646,000,000 [Source: Insurance Council of Australia] which equated to 1.4% of the Australian economy for the same period. The results are not posted for the year ended June 2009 as yet, but with the Victorian bushfires and storms and floods in Queensland and New South Wales, the payout figure for claims will have increased considerably. Due to the higher claims, combined with the global financial crisis which has seen our economy contract, it is expected that insurance payouts will be getting close to 2% of the Australian economy.

Even at 2008 levels, the claims paid by the Australian insurance industry equates to $2 per day for every man, woman and child in this country, multiplied by 365 days per year. Think of the flow-on effect for the entire economy. Clearly, any country that wants a strong and healthy economy needs a strong, vibrant insurance industry. We all witnessed the disruption to Australian business and the economy in general with the collapse of HIH Insurance in 2001.

In the recent Victorian bushfires, well over a thousand buildings were destroyed, yet 30% were not insured and, a high percentage of those that were insured, were under-insured. The question that is yet to be answered is how many of those that perished in the fires stayed to protect their home and contents due to the fact they were uninsured?

You would expect a responsible government to work with the insurance industry to look at ways of making insurance more affordable so that more of society has adequate protection, particularly with the next fire season only a few short months away. Clearly, from the state or federal government’s point of view, the insurance industry is not putting a strain on them like, for example, alcohol or tobacco does in the health sector.

With this background, I write to advise that in their wisdom, the Victorian Government has just increased the fire service tax to 84% of the insurance premium for those living outside the Metropolitan Fire Brigade district. This is up from 63% at the time of the bushfires. But it does not stop there. The premium and fire service tax attract 10% GST and then a further 10% State Government Stamp Duty Tax. This takes a $100 premium charged by an insurer (out of which they pay claims, pay the salaries of their staff, rent and other overheads) to a massive $222.62 with $122.62 going to the government and $18.64 being tax on tax. The table below spells it out:

Tax Rate
Tax on Tax
Premium including Terrorism Levy
Plus Fire Service Tax
Sub Total
Plus GST
Sub Total
Plus Victorian Government Stamp Duty
Total Cost of Insurance

Australia needs strong, well-resourced emergency services. As a community we all benefit. The cost should be shared fairly amongst us. It should not be left only to the prudent and risk averse who insure. The more enlightened states of Queensland, South Australia and Western Australia realised the folly of taxing insurance to fund these all important services, years ago.

I strongly urge the Victorian Government to do the same for all our sakes. If not, we will see more people cancelling their insurance or reducing cover. This will only force the fire tax rate higher causing an even greater spiralling of costs to those that remain insured or, worse still, a reduction in services. Either way Victorians will be the losers.