Insurance Council says the Government consulting on how to levy insurance to fund new fire and emergency service shows how complicated and costly the regime is

Insurers are taking another swipe at the Government for “applying nineteenth century thinking” to the way it proposes to fund the new amalgamated fire service.

The Department of Internal Affairs is seeking feedback on the nitty gritty of how the levies on insurance policies should be changed to fund Fire and Emergency New Zealand (FENZ) when it’s established on July 1.

FENZ will see the New Zealand Fire Service, National Rural Fire Authority and 38 other rural fire authorities merge into one organisation.

Currently all individuals and businesses pay a levy on the insurance they have to protect their assets against fire damage. This levy funds 95% of the Fire Service.

The New Zealand Fire Service Commission has proposed this levy be increased by 39% from July 1 to fund the formation of FENZ.

Thereafter, from July 1 2018, the levy will be reviewed again and its base will be broadened to include insurance on material damage and third party motor insurance.

Complications calculating levies

Internal Affairs Minister Peter Dunne acknowledges the complication with this regime is: “Different types of property, including residential property, non-residential property and motor vehicles, may have different levy rates or caps. Some property will be exempt from the levy.”

In other words, you could have one insurance policy to cover a building you own, but will have to pay different levies if some of this space is used for offices and others for apartments, for example.

“Regulations will clarify how the levy will be calculated on insurance policies that cover these different types of property,” Dunne says.

The Government is seeking feedback on what these regulations should look like; on Tuesday releasing a discussion document for consultation; Proposals for Fire and Emergency New Zealand levy regulations.

The Insurance Council of New Zealand’s (ICNZ) CEO Tim Grafton says: “The very fact that the government has to consult to understand how you should apply the tax on insurance, shows just how complicated and costly it is to administer, and demonstrates why it would be far better to fund FENZ from direct taxation.

“This just highlights the complexity of the whole situation. Why on earth you’d do it this way, rather than use the IRD, which is a very effective tax collector, just beggars’ belief.”

Grafton says that while the proposed regime will be relatively straight forward for domestic insurance policyholders, it could be more costly and time-consuming for businesses and their brokers to implement.

What’s more, individuals/businesses, insurance brokers and insurance companies would be liable for making sure they accurately figure out which levy rates apply to which parts of the asset they’ve insured.

“We [insurers] are the tax collector, and under the Bill, we and insurance brokers, and the insured, all have liability for paying the right amount at the right time, and face penalties for not doing so,” Grafton explains.

Size of levies still unknown

As for the size of the new levies, these are yet to be determined.

But Grafton is urging the Government to hurry up and make a call on whether it accepts the Fire Services Commission’s suggestion to have these raised by 39% from July 1, until the full new regime (with the broader levy base) is introduced in July 2018.

He says insurers and brokers need sufficient warning to get their computer systems up to date, so they add the right sized levy to their clients’ premiums.

Relief for one will sting another

The Department of Internal Affairs, through its discussion document, is also seeking feedback on how best to help those most affected by the new regime transition to it.  

“Regulations may provide full or partial exemptions from [the] levy for policyholders who face an unreasonable burden as a result of the changes to the levy regime. This transitional levy relief can apply for up to seven years,” Dunne says.

The document proposes entities that will have to pay over $100,000 in levies a year under the new regime, and face a 300% increase, should qualify for relief.

“That may seem fair and reasonable, but nothing in this is fair and reasonable because as soon as you smooth it out for one, it means that everybody else will bear the cost,” Grafton says.

‘Politicians let us down at times’

Fundamentally, the ICNZ has for years argued it’s unfair that those with insurance are paying for a service everyone in New Zealand benefits from.

“This is nineteenth century thinking still being applied today. Everywhere else in the world has moved away from it. This will come grinding to a halt and we’ll be back again in a few years’ time, saying, ‘how stupid could we have been?’" Grafton says.

He maintains the levy regime is going to become an issues as insurance as we know it evolves with technology.

For example, he points to the fact Tesla is looking at bundling insurance cover in with the sale of its driver-less cars.

“So when you get a product like that coming in to the market, is FENZ then going to knock on the door of Elon Musk, and say: ‘Can you just unpick all of this so that we can apply a tax?’”

Grafton recognises this issue isn’t a “vote winner per say” in that it hasn’t been debated a whole lot in Parliament, but says New Zealand First has been the most responsive to the ICNZ’s concerns.  

“Politicians let us down at times,” he says.

The consultation period on the discussion document released on Tuesday closes on April 19.

The legislation establishing FENZ is still before Parliament. The Government expects the Bill to be enacted later this month or in April.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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23 Comments

Gone are the days the fire dept only showed up to help those who were actually insured.

The Fire service should now be rolled into a Govt Dept and be fully tax payer funded.

And the ambulance service too.

The down side to govt funding though is like police only turning up to the highest priority issues and the rest get no service what so ever. The good thing with the fire service is that they come.

I think we also need compulsory 3rd party min insurance on all motor vehicles at the same time.

Agree with everything.

A combined Domestic emergency services ministry type thing covering police, fire, and ambulance. I would also include the coast guard, surf lifesaving and LandSAR.

Having lived in a country where third party insurance is compulsory, I have my doubts. Insurance premiums go up (because honest people are caught in a captive market) and people who don't bother with insurance and crash into your car still don't bother with insurance and still crash into your car.

Except if you have no insurance and no money there is diddly a court will / can do to you. eg I once got nicked for speeding, when I got to court the guy in front of me had lost his job, was on the benefit, no insurance, no MOT (WOF) no nothing....a $40 fine he couldnt pay anyway. Declare him bankrupt? then he is un-employable, So I guess no licence? that would make him un-employable, and anyway would that stop him driving do you think?

The problem for me is many laws, expectations and attitudes assume you have something to lose, a stake in a society that you dont wish to lose. If it has been taken away then with nothing to lose you are encouraged to change the system aka French Revolution style. Cant happen though thase days can it?

The ambulance service prioritises now. I would expect with only so many fire engines and staff the same will happen from time to time.

19th Century thinking is generous. Everything this Government tries to do turns into a complete disaster as they are completely clueless.

What a load of sweeping generalisations (aka BS) .....

What a sweeping generalisation. The National Government has made a complete mess of the building code with their changes, failed to rebuild Christchurch, are promoting increasing house prices through their actions even though it risks collapse of our finance system, etc. As such your comment is bullshit.

The insurers in Rodney Auckland are not getting what they paid for. The areas of Whangaparaoa, Silverdale, Orewa and the rural boundaries ( which has a similar population to Dunedin) are only covered by professional firefighters at Silverdale Monday to Fri 7am til 5.30 pm. The rest of the time they are only covered by volunteers. Not sure if many people know this.

In the Black Saturday Fires in Victoria in excess of 2000 houses were destroyed.

In the wash up it was discovered a too great a number were uninsured which in turn became a huge multi-billion cost burden on the Federal Government by way of welfare payments and loss of tax revenue, and State Government in the form of rates, clean up, and eventual subsidies and support in the rebuild

As a result of this learning the Victorian State Government removed the imposition of fire Service Levies on Insurance policies and added it to Property Rates collected by Local Councils

Insurance premiums went down for the insured
Council rates have increased less than the insurance premiums have reduced
A win all round

Because everyone is now contributing

That sounds a bit too logical for NZ though.

Yeah, but it needed 300 people to lose their lives plus another 3000+ people's lives destroyed

No kidding. And I'm sure the ptb were well aware of it - so why would they not adopt such a solution?

Agree.

There are various ways large corporates manipulate the way insurance policies are structured, to minimise fire service levies. As well as the unfairness of uninsured people bludging, it's inequitable that significant avoidance mechanisms are available to large businesses but not smaller operations.

Then there are offshore businesses with assets in NZ but insured in their home countries, sometimes deliberately under insured or not insured, due to the financial resources of the parent. These enterprises are paying far less than their fair share.

Grafton is right. The present highly complex and unfair collection process is well past its use by date. Everyone pays rates, either directly or indirectly. FSL should be based on rating valuation and in the case of vehicles, an add on to registration.

Simple.

Most if not all these things have been well canvassed before. Mr Middleman's preference to rate on building market value as a Rating cost against building/structure owners and (indirectly) the tenants sounds OK however how then to you maintain equity when contents values (plant, stock, machinery) escape the net? Or are contents values more or less in proportion across all types to building values?. There may be many where building values are very small against large contents values, such as a vineyard growing only.

No, the value ratio of contents to buildings is often mismatched. But why should value at risk be the determining factor given the same fire service turn out would be required for a building irrespective of the value of its contents? And a bigger building would theoretically attract more levies due to the higher value.

You could argue fire loading and flammability of contents should attract a higher levy due to more appliances being needed to fight the fire but a counter point is that high quality risk management should attract a discount. And so you get into the cycle of complexity that dogs the present system.

No system is perfect but rating valuation catches everyone and can't be evaded. Don't underestimate the extent of avoidance possible under the present system.

im quite surprised that there isn't already a levy on car insurances, as many times the fire service responds to car crashes...
on another note, i don't think i pay a single cent to the fire service. a bit embarrassing really...

If you insure a house or contents, you will be paying levies. If you rent, the cost of FSL is built into your rent.

Noted and OK - BUT what I think is missing is a full appreciation of the 'political' position. Firstly to have the Fire Services paid by general taxation (like the Police etc). This was going to need an extra $400 mio plus in general taxation. Political parties would not like this at all. And less so in an election year. Putting it into Council Rates was going to run into similar but more direct problems which no Local Authority had any motivation to do so then it had to be forced. People just don't see it as balanced by a lesser amount on their insurance bill. The Insurance Council has been bleating about the current system for over 30 years. I think they need to accept that the politicians are unlikely to buy a shift to taxation or rates and just ensure that within that major constraint the new system is made to work as best that it can be. To suggest it makes people or companies go uninsured is I think just rubbish.

The whole issue is driven entirely by the political considerations you outline. Never mind the inefficiency, drag on commerce and the basic unfairness.

Be interesting to know how much fire services levies was paid by the owners of the ex Osmose (now Koppers USA) Auckland site that was fire damaged last night and required a significant brigade response. I have no knowledge of how their insurance program is arranged and they might be paying their proper share but it's not uncommon for international companies to have a global insurance program placed offshore and paying minimal ,if any, fire service levies in NZ. I think all corporates should be paying full levies on the value at risk at each site where they operate but the reality is many are not.