The Insurance Council of New Zealand has proposed funding fire and emergency services through central taxation, as the government considers whether the current levy on premiums is fair and fit for purpose.

Funding Fire and Emergency New Zealand (FENZ) through taxation would be the simplest and most equitable arrangement and best reflect the public good provided, an ICNZ submission says.

If that approach is not adopted, ICNZ proposes a staged transition to a broader property and motor vehicle-based model with increased Crown funding, reflecting both the public benefit element and the contribution government property should make to the system.  

Internal Affairs Minister Brooke van Velden in June asked the Department of Internal Affairs to review “whether there are better ways” to fund FENZ. The outcome will not affect levy rates set for the three years started July 1.

ICNZ says government taxes and levies account for about 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 about 9% of premiums.

“The current funding system reflects a time when fire services were closely linked to fire insurance, but that’s no longer the reality,” CEO Kris Faafoi said.

“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 submission says the current model creates a free-rider issue, with uninsured property owners benefiting from emergency response capabilities, while similar concerns arise for Crown-owned assets, particularly where agencies self-insure or make only limited FENZ funding contributions.

FENZ’s budget has increased from $NZ496.3 million ($401 million) in fiscal 2018 to $NZ857.9 million ($693.2 million) this year, while natural hazards are increasing pressures on insured losses and pricing.

“Continuing to rely on an insurance-based levy risks creating a self-reinforcing cycle of higher insurance costs, reduced insurance uptake and a narrower levy base,” ICNZ says. “That outcome would undermine both New Zealand’s future resilience and the longer-term sustainability of FENZ funding.”

Mr Faafoi says there have been calls for many years for a fairer and simpler funding approach and the review presents an opportunity to create a model that better reflects services provided and delivers a more sustainable framework into the future.