The Insurance Council of New Zealand has a dream scenario when it comes to the fire and emergency levy: for the uninsured to stop “free-riding” on insured individuals who’s levies pay for New Zealand’s fire and emergency services.
But that isn’t likely to happen anytime soon as the Department of Internal Affairs (DIA) – which holds responsibility for Fire and Emergency – told Interest.co.nz this week there are “no plans” to move away from a levy on insurance policies.
The Fire and Emergency (FENZ) levy is set to rise almost 13% in July so the emergency organisation can plug anticipated deficit holes over the next four financial periods.
The levy – which is applicable to all insurance contracts covering the risk of fire for assets in New Zealand – is currently set at 10.6 cents per $100 sum insured. The rate will rise to 11.95 cents per $100 sum insured from July 1.
Residential buildings are assessed at the standard levy rate, with a maximum payable levy capped at $106. This maximum levy will rise to $119.50 as of July 1.
However, there is no ‘cap’ for commercial buildings or mixed-use buildings, and Insurance Council chief executive Tim Grafton says this is “particularly difficult” for apartment dwellers.
The Insurance Council, the general insurers' lobby group, is critical of the levy and Grafton says the levy has a “strong unfairness” and is paid through “attacks on insurance”.
Only people who insure their home, property or motor vehicles pay this tax, but Fire and Emergency “responds to all New Zealanders when the call comes”.
“That means that there are a number of people who free ride on the situation.”
Grafton says FENZ funding should come from a central government level and general insurance shouldn’t be picking up the cost.
“We've got a system that isn't good and needs fixing, but nobody is willing to fix it,” says Grafton.
‘Ongoing sense of inequity’
The FENZ levy provides almost 100% of the funding for the operations of the unified urban and rural firefighting organisation while a Crown contribution tops up the rest.
In 2023, the levy made up 97% of FENZ’s funding, bringing in over $670 million.
Since 2017, a Crown contribution of $10 million per annum has also been given at the Government’s annual budget. FENZ says that the contribution amount hasn’t been reviewed since 2017.
Neither the DIA or FENZ's deputy chief executive of finance and business operations Darryl Purdy were able to tell Interest.co.nz if the Crown’s $10 million per annum contribution was going to continue under the new government.
In its Briefing to the Incoming Minister (BIM) released in February, FENZ told the new Minister of Internal Affairs, Brooke van Velden, the $10 million Crown contribution didn’t reflect the “true costs” of training, specialized skills, equipment, and community support for non-fire emergencies.
“Recent levy consultation feedback tells us there is an ongoing sense of inequity that policyholders are paying for services unrelated to their insured property, and subsidising those who pose a higher risk, take a first-loss approach (take insurance cover for a sum less than the total value of their property), or self-insure (do not insure at all),” FENZ also says in its BIM.
FENZ's Darryl Purdy says “about $3 a week” gives people the understanding that Fire and Emergency will respond to people in emergency situations.
Sufficient funding and capacity are issues that the emergency services organisation is focused on.
“So the key thing for us is that there's sufficient funding for us to be able to undertake that role on behalf of New Zealanders,” he says.
Purdy says FENZ gets called out to around 85,000 events each year on average but it’s the changing number of incidents, not so much the breadth of incidents, that FENZ is now having to deal with.
“At one point in time, we might have a really wet North Island and a really dry South Island. We’re responding to a major flood on one hand and a raging wildfire on another,” he says.
‘No plans’
A FENZ transitional levy rate document from April 2023 reveals that a $145 million collective agreement settlement with the New Zealand Professional Firefighters Union (NZPFU) in December 2022 pushed FENZ into a deficit, which then prompted the 12.8% levy rate increase from July 1.
In the 2023/2024 financial year for example, FENZ expects revenue to stay steady at $673.8 million, but the NZPFU agreement costs means FENZ’s expenses will rise from $663.7 million in that financial period to $713.9 million.
Its predicted net surplus of $10.1 million for the 2023/2024 year will sink to a net deficit of $40.1 million.
For its 2024/25 financial year, revenue for Fire and Emergency expects its baseline expenses to come to a total of $740.1 million while revenue in the same period has been forecast to be $686.8 million, leaving a $53.3 million deficit.
There’s also more change on the horizon for the levy. Effective from July 1, 2026, FENZ says the following changes will come through what it’s calling the ‘Part 3 levy’:
- The levy will be charged on insurance contracts for fire damage, rather than material damage as initially proposed
- The method for calculating the levy will transition from the insured amount to the sum insured in all fire damage contracts.
- A uniform levy will be applied to all motor vehicle insurance policies, irrespective of vehicle weight.
- The definition of residential property will be revised, impacting the levy structure for mixed-use buildings. This means residential portions of mixed-use buildings will be subject to a residential property levy rate, while non-residential sections will incur a non-residential property levy rate.
The Fire and Emergency BIM says Van Valden will need to decide on the Part 3 levy’s as well as accompanying regulations by December 2024 “in order to allow insurance companies the time they have stated will be required to update their systems and processes for the Part 3 levy changes”.
Suzanne Doig, the deputy chief executive of regulation and policy at the DIA said in response to written questions from Interest.co.nz there are “no plans” to move away from a levy on insurance policies.
Asked about long-term emergency services funding measures the DIA wanted to explore, Doig said only that the financial sustainability of Fire and Emergency was important and the department was working with Fire and Emergency on details for the next levy period which runs from 2026 to 2029.
39 Comments
How ironic. According to Wikipedia "Property Insurance as we know it today can be traced to the Great Fire of London, which in 1666 devoured more than 13,000 houses". Agree that the free rider problem should be dealt with though as everyone else's premiums ultimately pay for it. Maybe change where the levy is placed, to put it on something people can't opt out of, i.e. rates, rather than something they can i.e. insurance.
True. The council / govt may have been better leaving it to the free market and allowed people to hire geotechnical experts and builders/engineers to rebuild and certify their place as safe if they wanted to sell it with council consent/certification.
Same could have applied to unsafe houses after floods in Auckland, rather than simply handing out millions to folk whose places aren't safe to live in anymore. The owners of some of the more expensive Auckland properties bought out must be some of NZ's most generously compensated welfare beneficiaries ever.
Sorry guys, but you don't know what you're talking about. There are two components, one is the land, the other is the improvements on top (the building etc).
1) The crown paid out everyone whose land was red-zoned, whether privately insured or not.
2) The insurance covers the building and improvements only. Even if uninsured, the owner got the first $100k + gst = $115 k from EQC. What they should not have received, is the value of the building only, above $115k.
How do I know? I lost my house in the Chch EQ and my house was red-zoned. it took me two years to get fully paid out despite being privately insured.
So you're implying the crown should have been free to take the the improvements as well for absolutely nothing?
As has also been pointed out the crown bailed out AMI insurance holders, what's that up to now, $2b. Note they refused to bailout Western Pacific at the same time, only recently learned some of them were individual home owners.
You make it sound as if it was a good thing for the Crown to inherit a "free" uninhabitable building. This is not the case, it cost (back then) about $50,000 to demolish the dwelling, remove it from the site and dispose if it. This expense was borne by the insurance as the Crown only deals with the land.
Except it didn’t happen like that.
The original offer was for vacant and uninsured land to be bought at 50% of the 2007 land value (component of the rateable value). The so called Quake Outcasts took the case to the courts wanting a full rateable value payout as they were effectively being forced off their land. That 50% offer was declarted illegal in 2013 and after a six year legal battle, with the Court of Appeal eventually ruling in their favour against the Government. The Government announced in 2017 that they would payout at 80% of the RV.
All of that funding came from central Government, not EQC as it would be unlawful for EQC to pay out anything to anyone not covered by EQCover (which would cover most uninsured houses unless they have taken out a special fire only policy).
How do I know? I was working with EQC at the time.
"The original offer was for vacant and uninsured land to be bought at 50% of the 2007 land value"
No one insures the land, you insure the improvements, i.e the building etc... So that is just plain wrong.
Yes, there was originally an offer to only payout 50% of land value (which has nothing to do with insurance), but subsequently the Crown paid out the full RV.
Also, last year, there was a further payout by SR, following the Dodds case, for professional fees and a contingency sum + interest for 12 years. If any of you have received an original payout but nothing additional last year, contact SR or ask me, I'll help you out. It can be a significant sum ($140k in my case)
Yes, but the people who insured with AMI, which went bust and got taken over by Southern Response, paid premiums for years to have their dwelling insured, so it seems fair that they should get compensated. Whereas people who chose not to insure, never paid any premiums.
Yes, they chose wrong and had bad luck. It's still not the taxpayer's responsibility to protect their wealth with welfare handouts.
Many of these same folk may be wont to rant about welfare to the poor, yet seem to feel morally entitled to welfare handouts of huge amounts when they themselves suffer some bad luck.
Bizarre.
Few would. Whether or not they knew though, would not change the fact they are welfare beneficiaries to a great degree - to preserve their wealth.
Remember that welfare wasn't actually meant to be taxpayer handouts to keep people in wealth when they suffer from bad luck. And for the poor, well, folk seem to resent them receiving even the little that sees them bumping along the bottom.
Imagine if we started bailing out recent First Home buyers by extinguishing a portion of their mortgage debt to bring their repayments back inline with what they were paying before mortgage rates tripled? Would be hilarious right? Stand on your own two feet and accept the consequences for your free choice, we're not a welfare state etc.
Those who chose the wrong insurer were probably part of the older cohorts, that's probably why all the stops came out.
The ironic thing is that there are a lot of people in Christchurch who would happily pay insurance, but the insurance companies won't accept them. I bought a property with relatively light damage to the house, but significant damage to the garage. The old garage was built partially on the road reserve, and I rebuilt it completely off the road.
The previous owner unbeknown to me had been paid out in full for a new house, and ever since I have been unable to get insurance. It would have been great if that information had been disclosed as part of the sale process. It wasnt a cheap house, and I discovered there were a number of elements of the old house which needed replacement, like rubber coated wiring, and a sewer line blocked with roots, and a roof that had rusted through, all which I replaced, but the insurance companies won't insure it, dont give reasons, it is over 100 years old, it does have some borer in the floor boards , but having gone now for ten years without insurance, I'm finally starting to get use to ie idea of self insurance.
Yes indeed, a house that received an insurance payout, is no more able to be insured. The vendor and agent should have disclosed that, and the sale should have been "where is, as is". The purchaser's lawyer also should have found this out from the LIM and property file.
I think in the UK they add insurance, it may only be third party to their vehicle registration fee. Could this FENZ levy be collected at that point - it is probably a good idea as then at least everyone who registers their car has at least 3rd party cover and has contributed something. May save the rest of us some money, but of course there will always be those who fail to register their cars.
I have no problems with the current situation, was unaware that I was concerned with the inequities of the current situation with the "free riders". Be wary of organizations such as this that have a vested interest in the results.The insurance council have no interest in my welfare, only their profits.
Yep it's like they're deliberately attempting to trigger a divide a distract narrative. How many are even aware how FENZ are funded thinking it's all covered by central government? Why not be thankful that your contribution might be helping someone in their time of need?
It's similar to the issue about which group pays the most tax - totally missing the point about effective tax rates - the median worker paying 30% while the wealthy pays 12% but lets blame the lower income person who may be receiving tax credits.
Given that most rural FIRE departments are volunteer based even those insured are "free riding" in some sense.
Maybe the solution is compulsory third party and fire insurance on vehicles, but I don't think we're able to enforce this effectively. If the poor are unable to manage registration and Wof how are they going to pay insurance?
Prior to 2017 nz had 2 separate fire services. Rural fire services funded through territorial local authorities (TLAs) and cost recovery; and urban fire service, I think funded through the insurance levy. That's why in many parts of the country, Central Hawkes Bay for example, there are still 2 FENZ stations - one houses natural environment (I.e. rural) capacity will the second housing built (I.e. urban) capacity. it is the built environment units that have the motor vehicle accident recovery capacity. Although all firefighters must hold co-responder or higher first aid qualification.
With the amalgamation or urban and rural in 2017, the arose a single entity (FENZ) fire fighting agency. Although many big forestry companies also have in-house fire response capability. In the amalgamation, the prior cost recovery element for rural fire fighting was extinguished. And the current funding model established. The communities of NZ enjoy no fault access to this service - dial 111, fire and a response will be initiated without question.
The reality is that NZ has a low cost emergency response service in FENZ that responds to all situations within it's gambit on a no fault basis. Low cost because around 85% of fire fighters are volunteers where FENZ meets the cost of training (the equivalent of professional firefighters), equipment, ppe, appliances, buildings, etc, and a small annual (less than $400) reimbursement grant for each volunteer.
I would hazard that many rural FENZ brigades are under resourced in vehicles and equipment for the response capability they are expected to deliver.
Funding for this universally accessible service needs to recognise the universality of the service. In my opinion relying of insurance fire levies is inequable (spelling?) and requires redesign.
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