A recent report prepared by Deakin University has found that on average, only 72.5% of the total cost of insurance payable by Owners Corporations in Australia is for the insurance premium itself, and in NSW this number is as low as 60%. This could have you asking the question – just where does the remaining amount go? In the following article, we explain how the other costs are factored into the total insurance payable.
BASE PREMIUM – You may be familiar with the term “base premium” and have seen it on an invoice but never actually given it much thought. Base premium is the starting point for any insurance quote or renewal. Your insurer will calculate this amount based on various rating factors such as geographic location, building materials, age, claims history, and so on. Base premium should reflect the potential risk associated with the property and, when aggregated, should cover the cost to the insurer of claims relating to the property and the insurer’s operating expenses.
LOSS RATIOS – A high Loss Ratio for an individual property is often cited as an explanation for a rate increase. This ratio is calculated as total claims divided by the base premium only (not total payable as is sometimes the assumption). It is this loss ratio that determines the insurer’s profitability. This means that on average, the insurer is only retaining 72.5% of the total insurance payable, so they may not be as profitable as they sometimes appear.
SO, WHAT HAPPENS TO THE REMAINING AMOUNT?
INSURANCE STAMP DUTY – Insurance Stamp Duty is a tax on insurance transactions. It is calculated as a percentage of base premium plus GST. This point is important because it is not commonly known that the GST charged on the base premium is included in the stamp duty calculation. This practice is sometimes referred to as “stacking taxation”. Stamp Duty is charged at between 9-11% depending on your location (and does not apply in the ACT).
EMERGENCY SERVICES LEVY – In NSW there is an additional levy applied to insurance called the Emergency Services Levy (ESL). The ESL helps to fund services that keep the community safe, such as Fire and Rescue NSW, NSW Rural Fire Service, and NSW State Emergency Services.
GST – As with most things in life, there is GST and insurance is no different. You will see GST on your invoices.
WITH YOU ALL THE WAY
To find out more or to discuss your insurance needs, please reach out at any time. Please follow this link to find a Honan contact near you.