THE State Government has been accused of discouraging people from ensuring they are adequately covered by taxing insurance as if it were a luxury.

An estimated one-third of homes damaged or destroyed by Cyclone Larry have been assessed as underinsured, and at least 360 homes were uninsured altogether, the deputy chief executive of the Insurance Council of Australia, Dallas Booth, said yesterday.

Coverage in NSW may be even lower, he said, because state taxes add 40 per cent to the cost of a standard home insurance policy, and 60 per cent to business premiums.

"The level of taxes and charges have put insurance into the so-called 'sin taxes' category, along with alcohol, tobacco and gambling," Mr Booth said.

"The Government needs to accept people need insurance for times of disaster and [the Government] needs to work with the insurance industry to ensure consumers can afford to buy the cover they need to protect themselves and their assets."

Australian insurance premiums are taxed at world record levels, Mr Booth said, with NSW and Victoria topping the country because of a 22 per cent fire levy on all home insurance. No other state charges such a levy, and for business insurance the fire levy rises to 34 per cent in NSW and 50 per cent in Victoria.

On top of that, a stamp duty ranging from 7.5 per cent in Queensland to 9 per cent in NSW and 10 per cent in Victoria is added, plus 10 per cent GST.

A spokeswoman for the Treasurer, Michael Costa, said NSW had the third-lowest rate of general insurance stamp duty. "Like Victoria, NSW imposes a levy on insurance companies to fund the fire services, whereas most other states impose a levy on property owners," she said.

Fire service funding arrangements were reviewed by the Public Accounts Committee in September 2004, and the NSW Government had accepted its recommendation that it retain the current arrangements for funding the fire services, she said.

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By Kelly Burke Consumer Affairs Reporter

Copyright © 2006. The Sydney Morning Herald.