Ensuring that Fire and Emergency New Zealand (FENZ) has a stable and sustainable funding base is essential, the Insurance Council of New Zealand, a lobby group for general insurers, says, welcoming the Government’s plan to look into how FENZ is funded.
On Wednesday, Internal Affairs Minister Brooke van Velden announced the Department of Internal Affairs (DIA) will explore whether there are better ways to fund FENZ compared to the current insurance levy system.
The DIA will engage with stakeholders and consider any issues with the current system and possible alternative approaches, taking into account feasibility of implementation.
About 95% of FENZ’s income is collected from levies on property insurance protecting against the risk of fire, van Velden says. This comes from a person’s premiums if they have insurance cover for property against the risk of fire. The levy also applies to motor vehicle insurance policies.
According to ICNZ, FENZ currently raises around $800 million annually through the levy.
Pressure on insurance premiums
Following the announcement, ICNZ chief executive Kris Faafoi said: "The current model relies on a levy applied to insurance premiums. While this has been in place for many years, insurers have long questioned whether it remains the most appropriate way to fund such a core public service."
FENZ provided an essential service, he said, and it was important that the service was funded in a way that was sustainable, fair and fit for the future.
Continued reliance on insurance levies risked adding pressure to premiums over time, affecting affordability for households and businesses, he said.
"When premiums rise, there is a real risk people reduce their cover or go without it altogether. That has broader consequences for individuals, communities and the wider economy.”
"Ensuring FENZ has a stable and sustainable funding base is essential. At the same time, linking that funding directly to insurance raises longer-term challenges,” Faafoi said.
The ICNZ expects officials to look at international approaches when it comes to funding fire and emergency services.
"The review provides an opportunity to step back and take a considered look at how best to fund a vital public service, while easing pressure on insurance premiums over time."
Other options
The ICNZ has proposed replacing the FENZ levy with a 'Community Protection Levy' which would focus on natural hazard risk reduction. FENZ funding would move from the levy to Crown funding.
The Insurance Brokers Association of New Zealand (IBANZ), on the other hand, wants the FENZ levy to be removed from the insurance sector, and instead be collected by central government taxation or council rates.
IBANZ has long been calling for a review of the FENZ levy, and its chief executive Katherine Wilson said: “A national or regional collection would be more equitable and consistent, and see all New Zealanders contribute towards the important services FENZ provides."
Increasing challenges around insurance affordability and accessibility could potentially lead to a shrinking pool of FENZ levy payers if the system was left as is in the long run, Wilson said.
It also raised questions about whether the levy would need to go up in the future, she said.
“Fire and Emergency is a service for the whole country, so it makes sense that the whole country helps fund it. The reality is that most of FENZ's levy is paid for by people who have property insurance,” Wilson said.
“There are people who do not have insurance, sometimes because it's too expensive, sometimes access is difficult, sometimes it's because they choose to self-insure, and so those households or property owners aren't contributing to the levy at all, which means that the insured property owners end up carrying more than their fair share of the cost of running our Fire and Emergency services.”
The Natural Hazards Commission estimates around 60,000 homes in New Zealand are not insured.
“If funding comes through, say, taxes or rates instead, the cost would be shared across all New Zealanders," Wilson said.
Alongside this, IBANZ members were insurance brokers in the general and fire space, which meant they calculated and collected the levy, Wilson said.
IBANZ has over 100 member firms operating in the general insurance market.
“One of the main challenges here is that public awareness of the levy is very low and so that often creates tension between brokers and their clients. And on top of that, the calculations are also very complex," she said.
New annual levy rates are still set to go ahead in July while the DIA looks into the current levy system.
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