A move to strip the Emergency Services Levy (ESL) out of New South Wales insurance premiums could expand the state’s insured base by roughly 400,000 policies, according to independent modelling that reframes a long-running tax debate as a question of addressable market for insurers and brokers.
The analysis, prepared by Lateral Economics for the Insurance Council of Australia (ICA) and released July 7, 2026, projects that removing the levy would bring an additional 82,000 households into building cover and 320,000 into contents cover, lifting building insurance penetration from about 95.5% to 98% and contents cover from about 65% to 75%. The estimates rest on price-elasticity assumptions applied to an 18% reduction in the effective cost of residential cover, and the report itself notes the coverage gains cannot be precisely quantified from available data.
For carriers writing NSW property risk, the coverage projection is the figure with the clearest commercial read. The current levy is charged on insurance, so it compounds through GST and stamp duty and lands as an estimated 18% loading on household premiums and 34% on commercial property premiums. The report describes a self-reinforcing dynamic in which rising premiums push households and businesses to reduce or drop cover, shifting cost onto a shrinking insured pool and pushing premiums higher again.
That pool is already under strain. The Actuaries Institute estimated 1.6 million Australian households – about 15% – were in home insurance affordability stress in the year to March 2024, up from 1.24 million a year earlier, with the sharpest pressure in NSW, Queensland, and the Northern Territory. Median home premiums rose 28% to $1,894 over the same period. The modelled uptake gains are confined to residential building and contents cover. The report does not project comparable increases in commercial lines, despite the higher 34% loading on commercial property, leaving the SME and agricultural coverage response an open question for underwriters assessing the reform’s full market effect.
NSW Treasury data underlines the scale. The ESL supplies 73.7% of emergency services agency funding, and the residential portion rose 48% between 2017-18 and 2023-24. Treasury projects the expected annual cost of flood, bushfire, storm, and cyclone damage to NSW property and infrastructure to rise around 70% in real terms between 2024-25 and 2065-66, which would drive levy requirements higher under the existing model. NSW is the last mainland state to fund emergency services through an insurance-based levy. The ICA has tied its case to state revenue trends, noting that levy collections are forecast to reach $1.5 billion in 2026-27, a 66% increase over five years, and that insurance taxes across the forward estimates exceed $3 billion a year.
The modelling is candid that reform produces losers as well as winners. While at least 2.1 million households would be better off, up to 147,000 households with little or no cover would pay the levy for the first time, and about 1 million households could pay marginally more, under $10 a year. Treasury’s own analysis puts the split at roughly 55% of insured properties paying less against 45% paying more. Among beneficiaries, the report models savings of around $565 a year for households in disaster-prone regional areas, $125 for pensioner households, and between $91 and $136 for strata households, with small-business examples ranging from $105 for a bakery to more than $21,000 for a small livestock farm.
The reform carries operational consequences for insurers. Treasury and Lateral Economics both flag sequencing risk – the prospect of policyholders facing the ESL and a replacement levy in close succession or letting cover lapse during the switch. The Independent Pricing and Regulatory Tribunal would monitor insurers through any transition to confirm premium reductions are passed through. The report also notes that some large commercial property owners self-insure and sit outside the current base, meaning a property-based levy would broaden who contributes. The National Insurance Brokers Association (NIBA) has argued the current model penalises those who take out cover.
Momentum is not guaranteed. NSW deferred an almost identical property-based levy indefinitely in May 2017. The current process sits with the Legislative Assembly’s Select Committee on Emergency Services Funding Reform, chaired by independent MP Jacqui Scruby, which is due to report by Nov. 18, 2026. The committee is weighing five levy models set out by Treasury, all built on tiered fixed charges on land values; Lateral Economics favours the six-tier Option C on equity grounds.
ICA chief executive Andrew Hall said reform would ease pressure on commercial policyholders, stating that “small business carries an outsized share of the current ESL burden, and reform would deliver one of the most meaningful cost-of-doing-business reductions NSW could offer its main street economy.”
