Source: Insurance Council of New Zealand | Te Kāhui Inihua o Aotearoa
The Insurance Council of New Zealand | Te Kāhui Inihua o Aotearoa (ICNZ) is calling on the Government to replace the Fire and Emergency New Zealand (FENZ) levy on insurance policies, saying the current system is outdated, not fit-for-purpose, and unnecessarily adds to the cost of insurance for households and businesses.
In a submission to the Government’s review of FENZ funding, ICNZ states emergency services should no longer be funded primarily through levies collected on insurance policies.
ICNZ Chief Executive Kris Faafoi says ICNZ strongly supports a well-funded FENZ and the work its people do every day but believes it is time to modernise how the service is funded.
“The current funding system reflects a time when fire services were closely linked to fire insurance, but that’s no longer the reality.
“FENZ today responds to a wide range of emergencies including vehicle accidents, medical events and civil defence emergencies. Everyone benefits from having a strong and effective emergency service.
“The key issue is whether the current funding model remains the best way to ensure FENZ is sustainably and fairly funded.
“Insured households and businesses bear most of the cost through the levy, despite the benefits of FENZ being shared across the community. That is becoming increasingly difficult to justify.”
ICNZ says government taxes and levies account for around 40% of a typical home insurance premium, with the FENZ levy making up about 5%. Across all insurance products subject to the levy, it accounts for approximately 9% of premiums.
“The collection and administration of the levy imposes significant compliance costs on insurers, which are ultimately passed on to consumers,” says Kris Faafoi.
ICNZ has recommended FENZ be funded through a broader and more equitable approach, such as general taxation or property and vehicle-based levies, reflecting the public good nature of the services it provides.
“The current approach is inequitable because people with similar assets can pay very different levy amounts depending on the insurance cover they choose, while those who are uninsured contribute nothing towards funding the service.”
The submission notes most Australian states and many comparable overseas jurisdictions have moved away from insurance-based fire service levies, instead funding emergency services through general taxation, local government funding or property-based levies.
“For many years there have been calls for a fairer and simpler approach to funding FENZ. The current review presents an excellent opportunity to create a funding model that better reflects the services FENZ provides today and delivers a more sustainable funding framework into the future,” says Kris Faafoi.
“We believe the time has come to move beyond an insurance-based levy and adopt a funding model that shares the cost of emergency services more fairly across the community.”