• Insurers, brokers welcome levy review

The Government will review how Fire and Emergency New Zealand (FENZ) is funded, a move that is being welcomed by the industry.

The FENZ levy has been controversial for many years. 

In 2017, the fire service levy for households was increased when the country’s fire services were amalgamated.

Insurers at the time said the burden of funding emergency services should not fall on those who took out policies, when the benefit of having the service was felt by all New Zealanders. The levy collects more than $450 million annually.

 “We’re having a look at the funding structure of FENZ to see if we can provide a stable, simple funding system that is fair to individuals and businesses,” said Internal Affairs Minister Tracey Martin.

 “The establishment of FENZ has gone well and New Zealanders are beginning to see the benefits of a modern, unified fire and emergency service.

“However, FENZ, like the fire service before it, is funded by a levy on property insurance and there are flaws in insurance-based funding.”

She said property owners without insurance were able to “free-ride” and charging people on their insurance increased the insurance cost and could reduce the incentive to properly insure.

“Levy collection is complex to administer for insurers, and FENZ’s levy income may become uncertain as the commercial insurance market evolves,” Marin said.

“I have also heard concerns from large property owners who are facing substantial levy increases under the modernised levy regime that was proposed in 2017. While the modernised regime would improve equity across levy payers, it appears that it may unnecessarily impact New Zealand businesses and other large property owners.

“The Government considers that there may be better ways to fund such an important organisation.”

She said the timing was right for a review.

There were a number of different funding regimes for fire services internationally, but there appeared to be a trend away from insurance-based levies and four Australian states have changed from an insurance-based model.

“We will be looking to achieve a model that is stable, universal, fair and flexible.

“No single option will fully satisfy all of these criteria, but I think we can do better than what we currently have.”

A public discussion document on the FENZ funding model will be released later this year.

The Insurance Brokers Association welcomed the move.

“The blinkered approach of successive governments has finally been replaced with common sense,” said chief executive Gary Young.

“However there are no guarantees that the current patently unfair, complex and inefficient process will be replaced.  The review is going back to first principles so everything should now be on the table.  What might replace insurance is open to debate.

 “No doubt options such as a levy through local body rates will be strongly opposed by local authorities.  The most obvious solution for an emergency service used by all New Zealanders is central government funding.  But the $450m burden currently imposed on insureds is significant; no one else will want to take it on. We need to prepare for a robust round of consultation to ensure the right solution is found.”

The Insurance Council also praised the decision.

"This is a grossly unfair tax that penalises people who try to do the right thing to protect their assets, lumping them with the cost of running FENZ while also supporting access to emergency services for those who choose not to insure," said chief executive Tim Grafton.

"The Government has made the right call to review how to fund FENZ in a way that is fair to everyone, simple, low cost to administer and lines up with what happens in most other countries," he said.

"I want to acknowledge New Zealand First and Minister Tracey Martin who have successfully argued the case to review the funding system and to the coalition Government for accepting the need to look at a better way of supporting FENZ.

"There is now an opportunity for the first time in many years to get this right. Hopefully, all parties will support change to a fairer system."

June 2019

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