A renewed wave of scrutiny is targeting Australia’s state-imposed insurance levies, with new modelling reinforcing what the industry has long argued: insurance taxes are economically damaging, exacerbate underinsurance, and disproportionately penalise households and small businesses at a time of rising climate risk.
Detailed economic analysis from Victoria University’s Centre of Policy Studies has concluded that insurance duties—alongside stamp duties—remain highly distortionary regardless of scale, undermining any rationale for retaining them even at low levels. The research arrives as insurers grapple with higher reinsurance costs, increased catastrophe frequency, and a growing affordability gap among policyholders.
According to the modelling, the marginal excess burden (MEB)—a measure of economic harm per dollar of tax raised—is significantly higher for insurance duties than for broad-based taxes such as GST or income tax. Even when insurance duties are scaled down to raise just 0.01% of GDP, they still produce a welfare loss of 31 cents per dollar collected.
This entrenched inefficiency stems from the behavioural impact of the tax: higher premiums discourage households and businesses from taking out adequate cover, or from insuring at all. The result is an underinsured population exposed to intensifying natural disasters.
From an operational perspective, this distorts risk pools, increases claims volatility, and complicates pricing strategies for underwriters. For brokers and distributors, it heightens the challenge of securing appropriate cover for clients—particularly in flood- and fire-prone areas where base premiums are already elevated.
The economic findings echo warnings from industry leaders. At QBE’s AGM in May, Chairman Mike Wilkins pointed to a critical imbalance.
“State insurance taxes raised $3.5 billion more than the entire general insurance industry’s profits in 2024,” he said, emphasising the urgency of tax relief as a mechanism to ease premium pressure.
He added: “Reducing these taxes is one of the few immediate tools governments have to ease pressure on premiums.” While insurers continue to adjust pricing to reflect mounting risk, Wilkins was clear that the real lever lies with government. “It’s simply not sustainable, economically or socially, to continue down this path.”
His comments followed confirmation of $420 million in catastrophe claims for Q1 alone, including losses from Queensland floods, U.S. wildfires and Cyclone Alfred. Despite being within its half-year allowance, QBE’s combined ratio remains finely balanced as investment markets and regulatory costs fluctuate.
The broader policy environment is also shifting. The Productivity Commission has proposed significant changes to corporate tax settings, including a lower headline rate for businesses under $1 billion in turnover and the introduction of a net cashflow tax to support capital investment.
While potentially beneficial to some sectors, the Insurance Council of Australia has joined a coalition of industry groups questioning whether the net cashflow tax is suitable for the financial services industry. The group warned the approach is “untested” and could lead to increased costs for intermediaries and end consumers alike.
At the same time, the Commission is calling for a national rethink on regulation, citing overreach and inconsistency across planning, approvals and compliance frameworks. In one example, the time taken to approve new housing in the ACT now averages nearly six months, while some large-scale renewables projects face delays of up to nine years. The result, according to Commissioner Barry Sterland: “Over-regulation is a handbrake on growth.”
The implications of retaining insurance taxes stretch well beyond affordability. For actuaries, these levies introduce distortions that can obscure risk signals. For underwriting leaders, they complicate efforts to deliver competitive pricing while maintaining portfolio stability.
Brokers operating in high-risk regions face acute difficulty. Levies of up to 30% on top of premiums can make the difference between a client accepting or declining cover. The pressure is most severe among lower-income households, SME clients and regional businesses—segments where insurers are simultaneously under ESG scrutiny to improve resilience and close the protection gap.
In this context, tax reform is no longer a fringe policy issue. It is now central to how the insurance sector can function sustainably in an era of climate instability and market volatility.
While some progress has been made—Victoria has removed stamp duty on commercial property, and the ACT is gradually phasing it out—there is little coordination among the states. And without a common strategy or federal replacement mechanism, reform remains politically fraught.
Nonetheless, the Centre of Policy Studies argues that the economic case is settled. Replacing inefficient state taxes with broader national instruments—such as payroll tax, GST or income tax—would deliver material welfare gains and a more stable foundation for long-term risk financing.
Until then, insurance professionals will continue to bear the operational burden of a tax regime that punishes protection, erodes trust, and runs counter to the industry’s mission of safeguarding Australia’s future.
