A new levy placed on property owners in New South Wales could end up saving them money, according to the state government.

The state government yesterday announced that from 1 July 2017 it will abolish the Emergency Services Levy (ESL) on insurance policies and replace it with an Emergency Services Property Levy (ESPL), paid alongside council rates.

The government estimates this will increase the average rate bill by around $160, but it claims modelling shows property insurance premiums will decrease by around $200.

NSW Treasurer Gladys Berejiklian said the updated funding model was a fairer one.

“Under the current funding model, NSW property owners who insure their properties are subsidising households who don't purchase contents or building insurance,” Berejiklian said.

“Fire does not discriminate and the community rightly expects that firefighting and SES services will be available to everyone in their time of need. It is also fair to expect all property owners to pay their share for these vital services,” she said.

The government is also hopeful the changes will encourage more owners to take out insurance.

Victoria abolished its insurance-based fire services levy and introduced a property levy in July 2013 - a reform prompted by recommendations of the Royal Commission into the 2009 bushfires with the goal of reducing the level of under-insurance.

Professor Allan Fels AO has been appointed as Emergency Services Levy insurance monitor and is tasked to ensure cost savings are passed onto consumers by insurers.

Prof Fels will have powers to seek pecuniary penalties from insurance companies of up to $10 million for unreasonable prices from today through to 31 December 2018.

The new levy will be based on unimproved land values and will be collected by local government on behalf of the State. Different property-levy rates will be applied to different categories of land. The government is considering appropriate land classifications such as residential, commercial, farmland and public benefit land.