Government pushes out decision on whether to increase the Natural Hazards Insurance Levy as Finance Minister Nicola Willis says insurance is a major cost-of-living pressure on New Zealanders

The Government is pushing out its decision on whether to increase the Natural Hazards Insurance Levy with Finance Minister Nicola Willis saying insurance is a major cost-of-living pressure for New Zealanders.

Speaking to reporters on Wednesday, Willis said she was concerned as New Zealanders had been coming to her and sharing that their insurance costs had gone up dramatically in recent years.

In January and February, on behalf of Associate Minister for Finance David Seymour, the Treasury consulted with industry professionals, experts and community representatives to look into the financial settings and levy settings under the Natural Hazards Insurance Act 2023. Options were put forward to maintain the levy at its current rate or to bump it up.

As part of their insurance premium, homeowners pay a Natural Hazards Insurance Levy.

This money goes into the Natural Hazard Fund and is used to cover claims after a natural hazard event. The fund is also used to buy reinsurance from international financial markets, meet the costs of administering the Natural Hazards Commission (NHC) Scheme and goes towards research and education.

“[Insurance is] a major cost of living pressure and a proposal which sought to add potentially hundreds of dollars to New Zealanders’ insurance bill was one that I thought was appropriate [that] we scrutinise very, very carefully,” Willis said.

Concerns have been raised over the rising cost of insurance, with a report from consumer advocacy group Consumer NZ showing that a growing number of New Zealanders were ditching insurance because of the cost.

And more recently in its latest six-monthly Financial Stability Report, the Reserve Bank said: "An increase in the Natural Hazards Commission levy would place additional upward pressure on insurance premiums."

Willis said as the scrutiny into the Natural Hazards Insurance Levy proposal continued, the Government decided to push it out.

But she said she would take proposals to Cabinet. 

When asked if the Government was kicking the can down the road, Willis said: "No. This is making sure we are looking after New Zealanders' best interests and every time the Government decides to impose an additional cost, it needs to do so very, very carefully. And to be sure that it's the right thing to do."

"One of the concerns I have that really matters for New Zealand's long-term resilience is that New Zealanders are able to afford insurance."

"A situation in which the Crown is contributing significantly to increases in the cost of insurance could of course lead to a situation where fewer people can afford to take it out in the first place," Willis said.

"That's not good for New Zealand. That's not good for the resilience of the economy."

Levy options

For each natural hazard event, the NHC currently pays $300,000 towards rebuilding or repairing a residential home. This is called a building cover cap and currently, the Natural Hazards Insurance Levy is 16 cents per $100 of the insurance cover amount.

The options put forward for consultation are to maintain the levy at its current rate of 16 cents per $100 of cover, or increase the rate to either 22 cents, 24 cents or 25 cents per $100 of cover.

In the consultation document, 24 cents per $100 of cover is considered the technical levy rate.

If kept at 16 cents per $100 of cover, this would be $480 per year. If it went up to 22 cents, it would be $660 per year and $720 if it went up to 24 cents per $100 of cover. For 25 cents per $100 of cover, it would be $750 per year.

The $300,000 building cover cap, the maximum amount the NHC can pay for a building claim, was also looked at, with options to keep it the same or increase it to $400,000.

In December last year, NHC chairman Chris Black told Parliament's Financial Expenditure Committee analysis had shown the current levy is insufficient by 50% and that “it should be 24 cents probably, versus 16 cents on the current settings to break even over time”.

‘Good news for households’

The Insurance Council of New Zealand (ICNZ), the lobby group for general insurers in New Zealand, welcomed the Government’s decision to leave the levy unchanged.

In August, an ICNZ survey found half of New Zealanders said they would not be prepared to pay $200 more per year in insurance - money that would go towards better funding the NHC.

Meanwhile 21% of those surveyed say they are unsure and 30% say they would pay more.

And since then, ICNZ has been calling on the Government to make a decision that would keep insurance accessible.

“Keeping the levy unchanged for now is good news for households facing ongoing cost-of-living pressures," ICNZ chief executive Kris Faafoi said.

Faafoi said ICNZ acknowledged the Government was; “balancing the ongoing sustainability” of the NHC Scheme “alongside the equally important goal of keeping costs manageable for households today.”

"New Zealand is one of the most natural hazard-prone countries in the world, and climate change is making these events more severe and intense," Faafoi said.

"The NHC remains a critical component in our ability to recover."