We sympathise with losses, but the fire insurance levy is unfair
The Age, 1 March 2009
By the time we get around to having an inquiry into the bushfires the issue of insurance is going to emerge and it has the potential to divide regional communities currently united in the face of tragedy.
There is tension already surrounding what's called the fire service levy - that's a levy charged on insurance companies to pay for the fire services. It's not commonly known, but 75% of the cost of the Victorian fire services is paid through fire insurance. The cost of these services are passed on directly to householders who insure. In other words, the people who take out insurance pay for the fire services available to all - including the uninsured. In NSW, where a similar system operates, a parliamentary inquiry in 2004 found the fire levy added 14 per cent to the cost of house insurance policies and 24 per cent to commercial policies.
The big two insurers in the Victorian bushfires have been CGU and the RACV. More than 2000 homes have been destroyed. The claims for loss and damage are still coming in. They are expected to top $1 billion.
According to Paul Giles from the Insurance Council of Australia, the average rate of non-insurance across Victoria is 24 per cent. However, Giles says from the statistics already received on the bushfires more than 30 per cent of homes in the fire areas were not insured.
Of course it's a free world and not everyone takes out insurance. Similarly, not everyone who holds an insurance policy insures for enough. Still, the fire service levy is clearly unfair. The problem will be dramatised when it becomes clear that the fire regions had more - rather than fewer - people who did not insure.
Almost immediately after the first wave of fires, Prime Minister Kevin Rudd said the destroyed areas would be rebuilt. A few days ago that message was clarified: there is an unfolding plan to give a general amnesty on key costs that can be faced when people build a new property, especially if they build in a different location to replace their old home. There are stamp duty exceptions and other administrative taxes that will not be applied. There may be more elaborations to the recovery plan soon.
This move by the Government will be a great relief for those who have lost homes. Yet, however you look at it, the decision also means that those who insured their homes subsidised their non-insured neighbours and now stand in line with them on equal terms when it comes to recovery support.
Pretty soon people might reasonably question the terms under which they are sold fire insurance. Second, insurers will almost certainly have to lift charges on those householders who continue to pay insurance.
The Government intervention - laced with the best of intentions - into the partially insured neighbourhoods of the Victorian bushfires is going to be problematic because it may undermine an existing system.
Maybe the fire levy could be scrapped. Maybe it should be retained but it could be based on the existence of property - in the way rates are applied to every single home.
Either way, it is clear the current system does not work . . . and certainly does not work fairly.