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Bigger Levy: NZ DIGS IN
Insurers and brokers battle a plan to extend New Zealand’s fire and rescue levy
Insurance & Risk Professional, June 2007

The New Zealand Government proposes to fund fire and rescue services through an expanded levy applied only to insured parties.

The insurance industry is outraged by the proposal, not least because climate change is predicted to bring more flooding and landslips to underinsured parts of the country.

Internal Affairs Minister Rick Barker has issued the proposal paper “New Fire Legislation: A framework for New Zealand’s fire and rescue services and their funding”. He says the change will broaden the leviable base considerably, allowing the funding burden to be shared over a much larger group of protected assets.

The fire services levy (FSL) will apply to properties insured against any kind of loss or damage, and to vehicles whether fully insured or covered for third-party damage only.

“This would be a major change compared with the current situation, where existing levies apply only to property that is insured against fire risk,” Mr Barker said.

The main concern for the industry is that the Government believes the FSL, which applies only to insurance premiums, is the best way of funding fire and rescue services.

Insurance Council of New Zealand (ICNZ) Chief Executive Chris Ryan told Insurance & Risk Professional there are far better and more efficient ways.

“Fire and rescue services could be funded through general taxation in the same way that the police are funded in New Zealand, or through a tax applied to properties and vehicles paid by 100% of New Zealanders, similar to that operating in parts of Australia.”

Mr Ryan says people who insure are responsible contributors to their own well-being and that of the economy, but this move by the Government will punish them for their self-reliance.

“It will actually reward those who don’t wish to insure and don’t pay for a critically important government department, of which they are beneficiaries. The fire tax encourages people to freeload on their neighbours.”

He is not alone in this view. Insurance Brokers Association of New Zealand (IBANZ) Chief Executive Gary Young says his organisation will campaign strongly against it.

“The fire service is an emergency service, and many New Zealanders need to use it at some time. To tie the cost to those who insure is inherently unfair.”

Another problem is that levies imposed on top of premiums will encourage people to go without insurance or make do with inadequate cover.

Mr Young says the New Zealand Government has made it clear it does not want to be the “insurer of last resort”, bailing out those who have not taken out cover and are left with nothing after a disaster.

“However, increasing the cost will encouraging non-insurance or underinsurance, and therefore the cost to the Government following a disaster.”

ICNZ estimates 20% of New Zealanders are not insured and therefore do not pay their share of the levy.

The insurance industry is also concerned about climate change and the potential for more flooding and landslips in underinsured parts of the country. Mr Ryan says the fire service is not funded for cleaning up after the effects of climate change – particularly flooding – or for attending a greater number of road accidents.

“Due to climate change, New Zealand is more at risk of floods and storms. Parts of the northern and eastern coastline are particularly vulnerable. Our estimate is that 40% of people are not insured in those areas, and that’s why it is unfair to those who have insurance.”

ICNZ says New Zealand is likely to see a high level of serious motor accidents on rural roads that will require the assistance of fire and rescue services and many will involve uninsured parties.

“This proposal lacks courage, lacks vision, punishes insured New Zealanders and encourages people to get a free ride. It should be a disappointment to all who held high hopes for a review,” Mr Ryan said.