The levy is used to finance fire services.

In a submission to the Victorian Bushfires Royal Commission, insurer CGU said the fire brigade funding model had failed to keep track with growth in demand for fire fighting services. The general insurer, which is owned by Insurance Australia Group, said a fire service, like police, was a "public good" and that funding arrangements should be transparent.

"Today, only insured people fund services that benefit the entire community," the submission said.

CGU said the Victorian Government should follow other states and introduce a property-based system to fund fire services. It argued this would provide substantial savings to policyholders and could encourage some to boost their level of insurance coverage.

At present, a levy on insurance premium funds provides about three-quarters of the annual budget for Victoria's metropolitan and country fire brigades.

The fire services levy will rise this year from 20 per cent to 21 per cent for metropolitan homes, and from 24 per cent to 26 per cent for rural dwellings.

CGU also raised concerns over the prospect of a state insurance scheme being introduced to protect fire victims, warning that this could lead to a culture of underinsurance and, in some cases, complacency.

"There is a role for governments and the community to provide financial support and other indirect and intangible benefits to those impacted by a catastrophic event like the Victorian bushfires," the CGU submitted. "However, when government or the community take on the role of 'insurer of last resort', the result is an inequitable allocation of funds and other forms of assistance that may actually perpetuate the behaviours that led to the assistance being needed in the first place."

The insurance industry has received just over 10,000 claims relating to the bushfires, with insured losses running at almost $1.1 billion.