Insurance Council says the Fire and Emergency levy ‘attacks’ and loads costs onto insurance as FENZ levy hike looms while DIA says there are ‘no plans’ to move away from the levy

The Insurance Council of New Zealand has a dream scenario when it comes to the fire and emergency levy: for the uninsured to stop “free-riding” on insured individuals who’s levies pay for New Zealand’s fire and emergency services.

But that isn’t likely to happen anytime soon as the Department of Internal Affairs (DIA) – which holds responsibility for Fire and Emergency – told Interest.co.nz this week there are “no plans” to move away from a levy on insurance policies.

The Fire and Emergency (FENZ) levy is set to rise almost 13% in July so the emergency organisation can plug anticipated deficit holes over the next four financial periods.

The levy – which is applicable to all insurance contracts covering the risk of fire for assets in New Zealand – is currently set at 10.6 cents per $100 sum insured. The rate will rise to 11.95 cents per $100 sum insured from July 1.

Residential buildings are assessed at the standard levy rate, with a maximum payable levy capped at $106. This maximum levy will rise to $119.50 as of July 1.

However, there is no ‘cap’ for commercial buildings or mixed-use buildings, and Insurance Council chief executive Tim Grafton says this is “particularly difficult” for apartment dwellers. 

The Insurance Council, the general insurers' lobby group, is critical of the levy and Grafton says the levy has a “strong unfairness” and is paid through “attacks on insurance”.

Only people who insure their home, property or motor vehicles pay this tax, but Fire and Emergency “responds to all New Zealanders when the call comes”. 

“That means that there are a number of people who free ride on the situation.”

Grafton says FENZ funding should come from a central government level and general insurance shouldn’t be picking up the cost.

“We've got a system that isn't good and needs fixing, but nobody is willing to fix it,” says Grafton.

‘Ongoing sense of inequity’

The FENZ levy provides almost 100% of the funding for the operations of the unified urban and rural firefighting organisation while a Crown contribution tops up the rest.

In 2023, the levy made up 97% of FENZ’s funding, bringing in over $670 million. 

Since 2017, a Crown contribution of $10 million per annum has also been given at the Government’s annual budget. FENZ says that the contribution amount hasn’t been reviewed since 2017.

Neither the DIA or FENZ's deputy chief executive of finance and business operations Darryl Purdy were able to tell Interest.co.nz if the Crown’s $10 million per annum contribution was going to continue under the new government.

In its Briefing to the Incoming Minister (BIM) released in February, FENZ told the new Minister of Internal Affairs, Brooke van Velden, the $10 million Crown contribution didn’t reflect the “true costs” of training, specialized skills, equipment, and community support for non-fire emergencies.

“Recent levy consultation feedback tells us there is an ongoing sense of inequity that policyholders are paying for services unrelated to their insured property, and subsidising those who pose a higher risk, take a first-loss approach (take insurance cover for a sum less than the total value of their property), or self-insure (do not insure at all),” FENZ also says in its BIM.

FENZ's Darryl Purdy says “about $3 a week” gives people the understanding that Fire and Emergency will respond to people in emergency situations.

Sufficient funding and capacity are issues that the emergency services organisation is focused on. 

“So the key thing for us is that there's sufficient funding for us to be able to undertake that role on behalf of New Zealanders,” he says.

Purdy says FENZ gets called out to around 85,000 events each year on average but it’s the changing number of incidents, not so much the breadth of incidents, that FENZ is now having to deal with.

“At one point in time, we might have a really wet North Island and a really dry South Island. We’re responding to a major flood on one hand and a raging wildfire on another,” he says.

‘No plans’

A FENZ transitional levy rate document from April 2023 reveals that a $145 million collective agreement settlement with the New Zealand Professional Firefighters Union (NZPFU) in December 2022 pushed FENZ into a deficit, which then prompted the 12.8% levy rate increase from July 1.

In the 2023/2024 financial year for example, FENZ expects revenue to stay steady at $673.8 million, but the NZPFU agreement costs means FENZ’s expenses will rise from $663.7 million in that financial period to $713.9 million. 

Its predicted net surplus of $10.1 million for the 2023/2024 year will sink to a net deficit of $40.1 million.

For its 2024/25 financial year, revenue for Fire and Emergency expects its baseline expenses to come to a total of $740.1 million while revenue in the same period has been forecast to be $686.8 million, leaving a $53.3 million deficit.

There’s also more change on the horizon for the levy. Effective from July 1, 2026, FENZ says the following changes will come through what it’s calling the ‘Part 3 levy’:

• The levy will be charged on insurance contracts for fire damage, rather than material damage as initially proposed
• The method for calculating the levy will transition from the insured amount to the sum insured in all fire damage contracts.
• A uniform levy will be applied to all motor vehicle insurance policies, irrespective of vehicle weight.
• The definition of residential property will be revised, impacting the levy structure for mixed-use buildings. This means residential portions of mixed-use buildings will be subject to a residential property levy rate, while non-residential sections will incur a non-residential property levy rate.

The Fire and Emergency BIM says Van Valden will need to decide on the Part 3 levy’s as well as accompanying regulations by December 2024 “in order to allow insurance companies the time they have stated will be required to update their systems and processes for the Part 3 levy changes”.

Suzanne Doig, the deputy chief executive of regulation and policy at the DIA said in response to written questions from Interest.co.nz there are “no plans” to move away from a levy on insurance policies. 

Asked about long-term emergency services funding measures the DIA wanted to explore, Doig said only that the financial sustainability of Fire and Emergency was important and the department was working with Fire and Emergency on details for the next levy period which runs from 2026 to 2029.