Broker highlights problems with new fire levy system

Broker highlights problems with new fire levy system | Insurance Business

Broker highlights problems with new fire levy system
A former insurance broker has claimed that changes to the fire levy system will put an unfair burden on policyholders.

Unlike the previous system where the rural fire services were funded by the district councils, the new system will see insurance for vehicles, contents, and property, become the main source of funding for the merged fire services, from July next year.

The NZ Fire Service and the National Rural Fire Authority, as well as more than 40 other rural fire services, will unite to create a single organisation, the Fire and Emergency New Zealand, by July 01, 2017; although it will take at least three years for all the services to be fully merged.

Mike Brooke, a retired insurance broker with some 40 years’ industry experience, has raised concerns with the new system, Fairfax Media reported.

“It’s basically unfair that people with insurance are expected to pay for the fire service when the fire brigade helps everybody,” he said.

“They don’t go around asking ‘are you insured?’ They help everybody because that’s what the community expects, but the people that pay for that are the people that are insured.”

He conceded that insurance brokers were concerned about the model.

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“This problem – known as ‘free riding’ - is a disadvantage of the levy system,” he told Fairfax.

Free-riding may not be a significant issue as compared to other countries, however, as the Earthquake Commission estimated that between 90% and 96% of residential houses were insured, the report said.

Peter Dunne, minister of internal affairs, said the new levy system meant insured property owners contributed at a level in proportion to their potential benefit from the fire and emergency services.

Dunne said the system is more advantageous than other funding systems that were considered, including a property-based levy collected through local authority rates.

“Such a system would have the effect of narrowing the levy base by excluding the many classes of property which are exempt from rates,” he told Fairfax.

“On the other hand, while funding from taxation would spread the burden to across all taxpayers, it would add approximately $400-500 million to annual public expenditure.”

Residents with house and contents insurance will pay an additional $36 a year, while those with car insurance will see a $2.37 increase in premiums each year, the report said.

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