The Insurance Brokers Association of New Zealand (IBANZ) has expressed disappointment with the government’s decision to keep funding Fire and Emergency New Zealand (FENZ) through an insurance levy, and CEO Mel Gorham said this decision could lead to “greater underinsurance” and an inflated perception of the cost of insurance.
The FENZ levy is applied to all property insurance policies, and is where FENZ receives the vast majority of its funding - something that has long been railed against by the insurance sector, which argues that it is unfair for insureds to bear the entire cost of a public service which is available to all New Zealanders.
IBANZ CEO Mel Gorham says the latest decision from the government “lacks balance” and could lead to a drop in insurance take-up rates.
“FENZ provides a crucial service to all New Zealanders,” Gorham said. “Levies remaining payable only by those who purchase insurance lacks balance and is unfair, given the wider benefit FENZ delivers to all in need.
“Whilst not an insurance cost, as collection remains with our members and sector, it gives an inflated perception of the cost of insurance. This can lead to greater underinsurance, or insurance not being purchased, which can lead to substantial challenges if something goes wrong for a client that could have been covered, but was not. Depending on the size of the impact, this can also be a time when people are vulnerable.”
Gorham said that adviser time has already been strained by the start of the FSLAA regime in March, and collecting the levy will “take time away from providing clients advice.” She said the government has so far done little to collaborate with the insurance sector on this issue, and despite its intention to “improve the insurance-based model going forward,” there is a lot of uncertainty around what that will look like.
Read more: FENZ levy: what are the alternatives?
“The lack of engagement, information and transparency from the government regarding the process, submissions and analysis has been unhelpful and has led to what we believe is a poor outcome for everyone,” Gorham said.
“We note the intention that ‘the review will now focus on improving the insurance-based model in the FENZ Act’ going forward, including working with us as stakeholders. But we remain concerned about the effect any changes may have on those who carry the levy burden.
“Given the lack of clarity about these improvements and how they could impact or redistribute levies paid and budgeted for by insureds, this creates greater uncertainty and the potential for further imbalance.”