The Insurance Council of New Zealand (ICNZ) has put forward a case for dismantling the current Fire and Emergency New Zealand (FENZ) funding structure, arguing that collecting fire service levies through insurance premiums is both structurally misaligned and increasingly inadequate in the face of growing climate risk.
ICNZ chief executive Kris Faafoi said the Crown should take on direct responsibility for funding FENZ, and that a restructured levy – simpler in design and narrower in scope – should instead channel money toward disaster prevention work such as flood protection schemes. “We have been saying for some time that New Zealand needs to invest more in reducing risk before disasters happen,” Faafoi said, as reported by RNZ. The levy in question collected close to $800 million in the 2024-25 financial year, according to Faafoi. He said countries with comparable economies and risk profiles, including Australia and Singapore, fund their fire services through central government appropriations rather than through a charge on insurance contracts.
Faafoi said the Insurance Council was not expecting the funding model to change in the near term. The proposed “Community Protection Levy” would leave the government responsible for covering a substantial FENZ funding gap, and he acknowledged the fiscal weight of that shift. “But we want this debate to happen, we’ve been calling for urgency and action for some time now, and we do believe that the size of the problem needs this kind of size of solution,” he said. Under the council's proposal, insurers would collect the new levy on the government's behalf. Faafoi said the restructured levy would be simple and efficient for both households and businesses.
FENZ is funded primarily under Part 3 of the Fire and Emergency New Zealand Act 2017, through a levy applied to insurance contracts that cover property in New Zealand against fire risk. Motor vehicle insurance contracts – including third-party-only policies – also fall within the levy’s reach. Revised levy settings and definitions come into force from July 1, 2026, under the Fire and Emergency New Zealand (Levy) Regulations 2024. The levy covers a broad category of property, including buildings, contents, plant and machinery, office equipment, stock, and car parks with associated improvements. Certain property categories are exempt under the Act and the 2024 Levy Regulations, replacing exemptions that had previously been set out in Schedule 3 of the Fire Service Act 1975.
Who bears responsibility for calculating and remitting the levy depends on how the insurance is arranged. When a New Zealand insurer issues the contract, that insurer is liable. When a New Zealand insurance intermediary arranges cover with an overseas insurer, the intermediary takes on that liability. In cases where a policy is placed directly with an overseas insurer and no New Zealand intermediary is involved, the obligation falls to the policyholder, who must calculate and pay the levy directly to FENZ. Levy payments are due by the 15th day of the third month following policy commencement or renewal on or after July 1, 2026. Goods and Services Tax of 15% applies on top of the levy amount. When a policy spans both New Zealand and overseas insurers, liability is divided: each New Zealand insurer covers its portion of the risk, while the intermediary is responsible for the share held by overseas underwriters.
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Failure to pay by the due date triggers interest charges from the following day, calculated at the rate set for unpaid tax under the Tax Administration Act 1994. Shortfall penalties may also be imposed where levy has been under-calculated, under-paid, or paid late, or where required returns have not been submitted. The penalty level depends on the nature of the non-compliance – whether it amounts to a lack of reasonable care, an unacceptable levy position, gross carelessness, or an abusive levy position – consistent with the penalty framework in the Tax Administration Act. FENZ may issue a notice of levy shortfall under section 117 of the Act. Responsibility for timely payment remains with the liable party regardless of whether such a notice is issued.
Faafoi said the current levy structure was “too complex, too uneven, and no longer well suited to the risks New Zealand faces.” He pointed to local councils as an example of institutions being asked to manage climate adaptation without the funding mechanisms to back it up. “We cannot keep spending more on disaster recovery while underinvesting in prevention,” he said. He also said changes to how the government accounts for resilience spending – treating it as an invest-to-save measure rather than a budget cost – could make pre-disaster investment more viable under existing fiscal rules.
Faafoi cited recent weather events as evidence that the pace of change warranted a policy response. “We’ve had a number of events already this year, we had a close miss on the weekend, these kinds of events are happening more and we think it’s time that all political parties start taking it seriously,” he said. The Insurance Council’s proposal remains at the advocacy stage. No government response had been announced at the time of publication.
