State taxes blamed for underinsurance State governments are to blame for much of Australia's underinsurance problem, according to ICA Executive Director Alan Mason. He told last week's Canberra conference that taxation and levels of insurance protection are directly related, and reducing tax has a positive effect. He said the benefit of reduced taxes on underinsurance was demonstrated by last year's audit of insurers in WA following the scrapping of the state's fire services levy. It found that as premiums reduced, people increased their level of insurance cover. Mr Mason attacked the Victorian Government's plan to tax companies which self-insure or have a deductible over $10,000, saying it reveals a "complete misunderstanding of the reason for deductibles which reflect a company's desire to manage it's own risk". The Victorian Treasury has proposed the bill because it sees deductibles as tax avoidance - a bit of a weird jump in logic because Victoria insists the levy isn't a tax at all. Mr Mason said "ICA, insurers and large corporates in Victoria are strongly urging the Government to withdraw the bill before it has a damaging effect on Victoria's image as a sound place for investment".
Insurance pumps up economy
State and territory governments collected $3.2 billion in taxes from insurance policyholders in 2003/04 - an increase of 51% over the past five years.
That's one of the more unnerving findings of a new analysis by the Centre for International Economics (CIE), which was commissioned by ICA to measure the industry's impact on the national economy.
The report says insurance has contributed $14.6 billion of GDP to the Australian economy. But it warns insurance is price-sensitive, and the high tax impost on policyholders is a significant cause of underinsurance and non-insurance.
"The economic analysis shows that taxes on insurance are relatively inefficient and that reducing these taxes or replacing them with almost any of the others that governments have at their disposal today would lead to large gains in economic welfare."
The report also finds Australian households, governments and businesses have $47.6 billion worth of current and future claims against insurers' reserves.
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