Insurers put brokers in hotseat for fire levies

by Maryvonne Gray 07 Sep 2016

Insurers put brokers in hotseat for fire levies

NZ insurers want lawmakers to turn their sights onto the role brokers play in the collection of fire levies as they draw up the new Fire and Emergency New Zealand (FENZ) bill.

The Insurance Council of New Zealand (ICNZ) has underlined the point in its recent submission to the select committee that while brokers do all the work, providing 53-57% of FENZ revenue, they are only referred to once in the bill.

In its submission, ICNZ said brokers were ‘central to the accurate and timely payment of FENZ levies’.

However, it said at present, all liability, collection and penalties for errors or delays rested with the insurer, even when getting it wrong was unintentional, innocent, or the fault of the broker.
The bill also allowed policyholders who took out insurance with an offshore insurer through a broker to avoid paying any levy at all, it said.

“Brokers act for the insured policyholder, and create insurance arrangements to maximise the benefit to their insured policyholder, including by minimising the amount of levy payable as a part of the premium,” ICNZ said.

“Brokers calculate the levy payable.

“Brokers receive payment of premium from the insured policyholder and pay it on to the insurer, often after 90 days or more.

“Insurers have no oversight of this process, and insurers have no interest or incentive to minimise the amount of levy payable to FENZ.

“And yet the bill places all of the payment obligations on the insurer, including penalties of up to $500,000 or even imprisonment for getting payments wrong.

“In our view this is totally inappropriate, and does not reflect the commercial realities of what government is asking insurers to do.”

ICNZ went on to recommend four specific amendments to the bill which it felt would acknowledge brokers’ role in the levy payment process better.

These included:
  • Ensuring references to ‘policyholder’ in the bill also referred to the policyholder’s broker;
  • Subjecting brokers to levy shortfall penalties and interest by amending references to the ‘levy payer’ to ‘any person’. This would then permit FENZ to pursue the party it saw as being at fault for any shortfall and would thereby ‘acknowledge the role of brokers in designing policy structures that were ‘levy avoidance arrangements’, ‘unacceptable levy positions’, and the like;
  • Allowing for mitigation in shortfall and penalties payable by insurers where other parties (ie the broker) were at fault; and
  • Inserting an obligation for a broker to be liable to pay the levy to the insurer on receipt of the policyholder’s payment.
ICNZ said: “Such provisions acknowledging the role of brokers will ensure all brokers improve their practices to ensure both the policy structures and levy payments are compliant with the law.”
However, the Insurance Brokers Association of New Zealand (IBANZ) has taken issue with ICNZ’s suggested amendments.

IBANZ CEO Gary Young supplied the following points to Insurance Business:

Firstly, he said: “Levies are applied to insurance contracts as agreed between broker clients (the insureds) and the insurers; brokers are not a party to that contract.

“We act as the agent for the client in arranging their insurances and within the authorities given to us.”

Secondly, he said the obligation for payment of premium and associated levies belonged with the client, and brokers only paid the insurer once the client had paid the broker.

“We can’t guarantee the payment obligation of the client under its insurance contract. The terms of payment by the broker to the insurer are a separate obligation compared to the statutory obligation the insurer has to the Commission.

“It is therefore not appropriate for us to be defined as a policyholder and therefore be held responsible for payment of levies in the same way as we are not responsible for payment of premium.”

The third point Young made was about the timing of payments between broker and insurer, which were, he said, a matter of commercial agreement between those two parties.

“Terms are agreed to by the insurers in full knowledge of their legal obligations in regard to levy payments.”

Next, Young said it was IBANZ’ view that the inclusion of a levy avoidance regime in the proposed legislation was ‘unnecessary’ and ‘unwarranted.’

“We have made our own submissions as to why general anti-avoidance rules are not required as opposed to widening them to include brokers.

“As we know, it took a number of years, thousands of dollars in legal fees and the three courts to finally rule on some policy structures where there had been a degree of legal uncertainty but which the Commission had considered to be ‘levy avoidance’.

Finally, he said: “If brokers incorrectly miscalculate levies then brokers will be the ones to pay for that if the client is liable for the levies or any penalties and interest.”

What do you think of the suggested amendments by ICNZ? Tell us your thoughts in the comments section below.

Read ICNZ’s full submission here.

 
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