INSURANCE COSTS

Page: 57

Matter of Public Importance

Mr PETER DRAPER (Tamworth) [5.05 p.m.]: The matter of public importance I bring to the attention of the House relates to a sharp rise in insurance costs across New South Wales that is affecting the ability of businesses to maintain the profits needed to continue operating with the same staffing levels. In our modern society, increases in premiums are as certain as death and taxes. The many vexatious court proceedings we have witnessed in recent years forced insurance companies to increase their rates to maintain their desired profit levels. Recently, residents in my electorate and, indeed, across the State have experienced sharp rises in their premiums, only this time it is not a consequence of insurance companies attempting to maintain high profits. From September last year, the insurance companies have increased the fire service levy on commercial business and farm policies from 26 per cent to 30 per cent, with a further increase to 34 per cent taking effect in February this year. At the same time the State Government increased the stamp duty component from 5 per cent to 9 per cent.

In domestic home and contents policies the fire service levy was increased from 14 per cent to 18 per cent in February this year. It was then increased a further 4 per cent to 22 per cent in April. Stamp duty on those policies was also increased from 5 per cent to 9 per cent. For many residents in the electorate of Tamworth those increases came despite little or no increase in their basic premium. They came without warning and have created a great deal of anxiety in the community, especially for business operators who are finding the imposts of drought and interest rate rises very difficult to deal with. The Government has been quite content, of course, to let these increases sneak by with as little attention as possible.

Following the announcement in September 2005 that stamp duty on domestic and commercial policies would increase from 5 per cent to 9 per cent, former Premier Bob Carr was reported to have said "insurers will absorb the increase". As any business owner could tell you, no viable business can simply absorb such increased costs and continue operating. These costs are passed on to the consumer and, as a result, the resulting increases penalised those prudent people who choose to insure their assets and potential liabilities.

Historically, the fire service levy resulted from the inequitable and unethical practices of insurance houses many years ago. In those days, when a home or business was insured, it displayed a fire mark or badge signifying the insurance house that held the policy. Urban and rural fire brigades were then owned and funded by the insurance companies to protect their clients' assets. However, as a result the ridiculous situation arose in which some fire brigades were protecting only the properties covered by that brigade's owner. That eventually came to the attention of the government of the day, which introduced a fire service levy on each premium to fund the operation of fire brigades and to ensure every property, regardless of its insurer, was treated equally. Today the Government indicates how much money needs to be raised through the insurance sector to maintain our essential emergency services, and the industry decides where and how to impose the levy and to what degree.

Rural people will suffer the most from the Government's policy. The Rural Fire Service protects all properties in remote areas of the State from fire, while New South Wales Fire Brigades services those in built-up areas. For many residents in regional areas of this State the nearest fire station may be many kilometres away, while most in urban areas are mere minutes from a fire station. The Rural Fire Service operates on a voluntary basis, and the stations may not always be manned, unlike many urban New South Wales fire brigade stations.

This brings me to the matter of equity. A person who owns a $600,000 property at Nundle, a small rural village in my electorate, will pay exactly the same premium as a person with a property of the same value in Sydney. It is clear that the resident in Sydney will be better serviced and can rely on a quick response from a nearby brigade in the event of a fire. That has brought some residents in my electorate to the conclusion that to ensure equity between rural and metropolitan residents the fire services component of the charges should be taken away from insurance premiums and applied to council rates.

It should be understood that I am not for a moment advocating that we should in any way reduce the amount of funding being provided either to NSW Fire Brigades or to the Rural Fire Service. What I am saying is that the manner in which these funds are being collected seems to be inequitable and unfair. People who choose not to insure their properties do not contribute to the maintenance of the fire services. However, they will enjoy the full benefit of the service, if needed, by ringing 000. Rural people are hurting badly due to drought, high fuel prices, rising interest rates, and increased food costs, so the last thing they need is an increase in insurance premiums. Most country people budget for small increases of 5 per cent to 10 per cent, but few could afford much more.

Following the last interest rate rise of a quarter of a percentage point, the average home loan repayment in New South Wales rose by about $40 a month. Fuel prices in my area are still hovering at about $1.40 per litre, which adds $10 to $15 to the weekly fuel bill for an average car. The trifecta was completed recently when consumers were hit with a 3 per cent increase in fresh produce prices as petrol prices forced up distribution costs. An amount of $7.50 must now be added to the average weekly family shopping bill of $250, increasing the monthly bill by about $30. That is a bitter pill for families to swallow, especially those on low incomes and those in rural and regional areas who travel great distances to access essential services.

Wesley Mission, which runs the financial counselling service Creditline, said that last year it counselled over 5,200 people struggling to make ends meet. It expects the number of people defaulting on mortgage, credit card, and consumer repayments to increase significantly as a result of these three rates rises. The most significant debt is the mortgage on the family home, with the national average mortgage running at almost $300,000 although, according to the Australian Finance Group, the average mortgage in New South Wales is around $370,000. In addition, according to the Australian Bureau of Statistics, the average total household debt has grown to $69,400.

From a consumer's perspective these hikes are hard to understand or justify. Tamworth resident and egg producer Bede Burke is facing an increase on his farm business from $10,727 to $12,128. Mr Burke's basic premium increased by 2.2 per cent but the fire service component increased by 44 per cent and the stamp duty component increased by 96 per cent. The GST charged on his premium rose by almost 9 per cent. Obviously such an increase comes at the worst time for Mr Burke, who has been forced to absorb not only rising fuel, food, and mortgage costs but also a hike in fertiliser charges and a record low in egg prices.

Mr Burke is also facing a major restructure of his business due to a national agreement to implement larger layer hen cage sizes by 2008. The cost of this restructure to Mr Burke's business will be around $4.8 million—a move he is now considering delaying because of the rapidly escalating costs of his business. The Burke family is looking at its options, but those options are limited to minimising losses and employing less casual labour, which affects local employment.

Mr Burke is one of many who is considering the option of either reducing or abandoning his insurance cover altogether—placing his belongings, business and livelihood at risk. Such a move, while risky, is understandable to an extent as paying these levies gives many people no direct benefit. During discussions Mr Burke demonstrated his distaste for the fund-raising strategies that are being used at the moment. He is one of many rural residents who is fed up with the enormous imposts being placed on New South Wales businesses.

Another unhappy business owner is David Miskle, the owner-operator of Rutec, a manufacturer of liquid nutrients for agriculture. He is facing an increase in his insurance costs from $6,875 to $7,470. That increase comes without any rise in the basic premium. He said that the Government is making it hard to conduct business in New South Wales by forcing constituents to pay for its poor economic management. He said that these increases would be passed on to the consumer, making it even more difficult to be competitive in this hard time of drought. Many of my constituents and I are confused and upset by the current system of insurance charges. I urge the Government to reconsider the method it uses to raise funds that are vital to maintain fire services in this State.

A Public Accounts Committee inquiry into this issue found that the current system appears to be the most equitable way of raising these much-needed funds. It looked at the application of the fire service levy to council rates so that, in theory, all residents and property owners would contribute equally to the upkeep of the fire service rather than only those who chose to insure, who therefore foot the entire costs of this sector. Unfortunately, the cost burden, when modelled, shifted the main pain from the business sector, where it currently is, to the householder. I am certain that the average resident would not be in favour of a system that sees pricing imposts increase quite significantly.

It is extremely difficult to develop a system that encourages business growth while protecting the householder at the same time, but the groundswell of public opinion against the current system is growing rapidly. I urge the Government to continue to explore options that may deliver a better system. Perhaps the way in which revenue is raised could be looked at again, outside the parameters of the current system. While everybody agrees that the services are essential, the imposts on country businesses and country consumers are having such an enormous effect that they deserve further consideration.

Surely it is time for the stamp duty currently being applied to insurance policies to be removed, as was promised when the GST was implemented across Australia, so that the people of this State are encouraged to insure against the all too frequent malicious damage, fire, storm and earthquake events that have occurred across New South Wales. Country people have raised this important issue with me on a number of occasions. Many people have come into my office and expressed serious concern about the ongoing viability of their businesses. They need to plan for the future to continue the strong employment rates that are evident in the Tamworth electorate. However, they are doing so under quite difficult circumstances. I again urge the Government to look at this issue as a priority.

Mr PAUL McLEAY (Heathcote—Parliamentary Secretary) [5.14 p.m.]: In 2004 the Public Accounts Committee devoted a great deal of time to a rigorous and comprehensive investigation of the funding of NSW Fire Brigades and the Rural Fire Service. Representatives on that committee included the honourable member for Myall Lakes, the honourable member for Willoughby, the honourable member for Monaro, the honourable member for Kiama, the honourable member for Northern Tablelands and me. The former Treasurer instigated the review in response to a report of the HIH royal commission, and he asked the committee to investigate an alternative system of funding the two fire services.

The investigation, which was comprehensive and rigorous, included numerous public submissions, and the financial modelling of the impact of the proposed property-based levy was commissioned. After that lengthy process the committee found in favour of maintaining the existing system. It found no compelling case for introducing a property levy. It is important to note that the report of the committee was endorsed by representatives from both parties and by the Independent member on the committee. NSW Fire Brigades and the Rural Fire Service must have a stable and predictable source of income so they can continue to maintain their important services across this State.

Debate concluded.

Proof, NSW Legislative Assembly Hansard, 20 September 2006, article 24