Industry optimistic for breaks in the fire levy

by Maryvonne Gray 21 May 2014

Industry optimistic for breaks in the fire levy

While IBANZ CEO Gary Young is pleased that present insurance industry practice can continue as it was following last week’s appeal dismissal, he says brokers and insurers would be happier if the whole issue was put on the table for an overhaul rather than swept under the carpet yet again.

Last week the Court of Appeal dismissed an appeal by the New Zealand Fire Service Commission that challenged how fire levies on certain commercial property insurance policies are calculated.

“Hopefully this court thing might precipitate some more activity on sorting it out,” he told Insurance Business.

“After these court decisions they [the government] might be forced to do something and not just fiddle with it.”

The Appeal Court hearing occurred after IBANZ and Vero sought a declaratory judgement in the High Court in 2012 to decide whether split tier policies and composite policies were valid for fire insurance policies.

The High Court found they were but the Fire Service Commission appealed the decision. Now the Appeal Court has come out in agreement with the High Court decision.

Acting chief executive of the Fire Service, Rob Pope, said it was yet to decide whether to take the matter to the Supreme Court as it was “still looking at the appeal decision and has not yet made any decisions on further action.”

In its judgement the Appeal Court said that parts of the 40-year-old legislation were out of date and needed to be reviewed.

Indeed, a review in 2012 looked at the mandate of the Fire Service and the panel agreed it needed a new mandate to cover all the things other than fire.

As well as the court decisions strengthening their case, Young said the fallout from the Canterbury earthquakes made for compelling reasons why the current method of funding the Fire Service from insurance premiums was unfair and inefficient.

“If you look at the consequences of people not being insured in Christchurch, it’s a cost for the government because they have to do something for uninsured people,” he said.

“You would hope that the Christchurch experience would point out that actually the current funding isn’t fair, it leaves some people uninsured which means the government has to step in anyway, so it’s better to sort it out now before we have the next one.”

Insurance Council of New Zealand CEO Tim Grafton agrees, saying direct taxation or property taxes, like the system most of the Australian states have moved to, would be much fairer.

“The fact that there are ways that people will look to meet their fire service commitments that the Fire Service doesn’t like is just one of the many good reasons why we need to be shifting to a system where it’s unavoidable to pay the fire service levy,” Grafton told Insurance Business.

“We’ve got a poor way of levying, an unfair way of levying. We’ve got something for the public good and it’s coming off fire insurance premiums when the fire service these days puts out fewer and fewer fires and doing more and more other activity which strongly suggests the funding of it should come from other sources.

“Transferring to a property-based levy would minimise the likelihood of avoidance and obviously the people who free ride on the current system who don’t insure or those who underinsure then all those properties are picked up in such a system,” he said.

Last year the ICNZ conducted a survey which showed most New Zealanders supported shifting the levy from insurance premiums to property rates.

The New Zealand Institute of Economic Research (NZIER) is due to release a report soon on how the levy applies to commercial insurance soon following on a similar report on domestic insurance concluded last year.

“Keeping insurance affordable is critical and having outdated and unfair taxes loaded onto premiums works against this,” says Grafton.