Australia governments should be far-sighted by abolishing state, territory taxes on insurance to encourage uptake

New research out of Australia suggests that nixing state and territory taxes on insurance would encourage property owners and renters to take out more insurance, thereby protecting AU$36 billion more in home and contents assets.

Based on the research – Analysis of Demand for Home and Contents Insurance, undertaken by Dr. Richard Tooth of Sapere Research Group – the Insurance Council of Australia (ICA) has found that if stamp duties and levies on insurance products were abolished, national asset protection against home contents losses could be improved by AU$20 billion, and by almost AU$16 billion for home (building) insurance.

Released Thursday by ICA, the research suggests that abolishing the taxes on insurance would better enable Australians to protect their homes and household assets. “Hundreds of thousands of households would be more likely to increase their insurance cover, or start buying insurance, if taxes and levies were removed,” notes a statement from ICA.

More specifically, ICA reports, “242,000 more householders would choose to take out home contents insurance if the cost of premiums was not artificially inflated by state government stamp duties and levies,” representing a 10% reduction in the number of households without contents insurance.

“The message to State and Federal Treasurers is simple: Be farsighted, and help your communities by removing taxes on insurance,” says ICA CEO Rob Whelan.

A lack of proper insurance cover means government must assume the burden should something go wrong, such as a natural disaster. ICA reports governments spend hundreds of millions of dollars every year on disaster recovery.

The research, Whelan suggests, “reinforces the findings of numerous government and independent reports that conclude state taxes on insurance are unfair, inefficient and regressive, and serve as a disincentive for many households to be properly insured.”

Whelan further suggests the abolition of inefficient taxes and levies would deliver massive and immediate community benefit.

Other key research findings include the following:

• 38,400 householders would opt for the peace of mind provided by home (building) insurance if government stamp duties and levies were removed, representing a 22% reduction in the number of households without home (building) insurance; and

• if stamp duties were removed from home (building) insurance, the total value of pre-tax premiums held by insurers would increase by 13% (AU$643 million) to AU$5.523 billion.

Whelan reports that the potential AU$36 billion increase in national home and contents protection would represent a 1.4% increase in the current national home and contents insurance pool, which sat at AU$2671.6 billion on June 30, 2015.