Property insurance policyholders in New Zealand are carrying the cost of emergency responses that have no connection to fire risk or property damage – a structural misalignment the government has directed the Department of Internal Affairs to examine.
The contradiction at the centre of that misalignment is straightforward: a levy designed around fire risk is funding an organisation where fire is now a minority activity. Between July 1, 2025, and March 31, 2026, only 59% of Fire and Emergency New Zealand’s (FENZ) recorded call-outs – including false alarms – were fire-related. The remaining 41% covered medical emergencies, maritime incidents, and severe weather events. Yet approximately 95% of FENZ’s operating revenue is drawn from a levy applied to property insurance premiums – fundamentally unchanged in design since 1975.
Minister of Internal Affairs Brooke van Velden announced June 17 that the Department of Internal Affairs has been tasked with assessing whether the levy remains appropriate, or whether alternative collection mechanisms are more viable. “Given the significance of the levy, it is timely to consider whether its design and operation remain appropriate, or whether improvements are possible,” van Velden said. The review will not affect levy rates already set for the three years from July 1, 2026, but its findings are expected to inform future regulatory and legislative decisions on FENZ’s funding structure.
As the share of non-fire call-outs grows – driven by an expanding statutory mandate under the Fire and Emergency New Zealand Act 2017 and an increase in severe weather events – insured property owners are absorbing a larger cross-subsidy for a universal service they do not exclusively use. Embedded in that cross-subsidy is a free-rider problem that has persisted since the levy’s introduction. Uninsured property owners draw on FENZ services without contributing to its budget, shifting that cost onto the insured pool entirely. The Department of Internal Affairs will engage targeted stakeholders and examine whether insurance is the only feasible collection method, or whether other approaches are practical – including whether the levy’s current design and scope remain appropriate given the breadth of FENZ’s current mandate.
For the insurance industry, the structural problems with the current model operate on two separate levels – one about the appropriate vehicle for funding a public good, the other about market stability. On the equity question, the Insurance Council of New Zealand | Te Kāhui Inihua o Aotearoa (ICNZ) has noted that FENZ serves all New Zealanders regardless of insurance status, yet its funding falls almost entirely on the insured pool. ICNZ chief executive Kris Faafoi said this makes the case for examining whether a universal public service should be funded through a mechanism other than private insurance premiums.
On the market stability question, Faafoi argued that continued reliance on insurance levies risks compounding pressure on premiums in a way that erodes the coverage base the levy depends on. “When premiums rise, there is a real risk people reduce their cover or go without it altogether. That has broader consequences for individuals, communities, and the wider economy,” he said. As coverage rates fall, the funded pool shrinks, placing further upward pressure on premiums for those who remain insured – a cycle that undermines both FENZ’s revenue stability and insurance penetration more broadly.
Faafoi said officials should examine how comparable international jurisdictions fund fire and emergency services, noting that many do so through central or local government rather than insurance levies. “We look forward to engaging constructively with officials as they consider options, including overseas models, to ensure FENZ is well-supported into the future,” he said. ICNZ has separately proposed a Community Protection Levy as a parallel industry initiative – distinct from the current review – intended to fund large-scale pre-disaster resilience work, such as infrastructure and land use measures ahead of natural hazard events. Where the government’s review addresses how FENZ’s core operations are funded, ICNZ’s proposal targets upstream risk reduction. Faafoi said that fewer large-scale weather events mean fewer FENZ activations, reducing pressure on the levy and on claims simultaneously – making resilience investment relevant to both the frequency of FENZ call-outs and the long-term affordability of insurance.
While the government’s review focuses on how FENZ’s funding is collected, questions about how existing funds have been spent have emerged alongside it – a distinction the New Zealand Professional Firefighters Union (NZPFU) said the review must not overlook. National Secretary Wattie Watson said that since FENZ was established with a $300 million funding boost in 2017, levy revenue has approximately doubled. Over the same period, management and support staff numbers have doubled while career and volunteer firefighter numbers have remained near 1990s levels. Expenditure on consultants and contractors has also grown, with consultancy and contractor costs in 2022 running at double the level recorded when FENZ was established – and continuing to rise each year since. “Any review must also have the power to do a deep dive into the management of FENZ and the way in which the funding has been spent to date,” Watson said.
No timeline for the review’s stakeholder engagement or reporting has been announced. For insurance professionals, the pattern Watson described carries a direct implication: the figures suggest policyholders have been funding an organisation whose structural costs have expanded faster than its career and volunteer firefighter capacity – a question that persists regardless of whether the levy is reformed or replaced.
