New Zealand’s Earthquake Commission (EQC) has been thrown a lifeline to help it meet operating costs.

The lifeline takes the form of an increased levy on all homeowners through their insurance premiums.

Finance Minister Bill English confirmed the new levy last week. Homeowners currently pay 5 cents per $NZ100 ($78). He says this will increase to 15 cents per $NZ100 from February 1 next year.

By levying homeowners rather than all taxpayers, the burden will flow directly to those who benefit from the cover. Commercial properties will not be affected by the levy.

A cap of $NZ207 ($161) per year, inclusive of GST, will limit the levy amount per policy. This is a substantial rise as the previous cap was $NZ69 ($53).

The EQC’s annual levy revenue is expected to rise from about $NZ86 million ($67 million) to about $NZ260 million ($202 million) to meet day-to-day operating expenses and reduce its $NZ1.2 billion ($934 million) cash shortfall to about $NZ490 million ($381 million).

Costs including reinsurance, the Natural Disaster Fund and the impact of the recent High Court decision that the EQC must cover households for every earthquake event rather than treat the quakes as one insurable event have impacted heavily on the commission’s operating expenses.

Mr English says the increase is “a responsible step to ensure the EQC can meet its long-term costs and continue to provide disaster cover around the rest of New Zealand in a sustainable way”.

He says without the increased levy the cost of the earthquake claims would pose a significant financial threat to the Government, which guarantees the EQC.

The levy is not based on a full actuarial forecast of future liabilities and therefore may need to be adjusted in the future.

In general, insurance premiums in New Zealand have increased following the earthquakes. For example, IAG NZ home and contents policies have risen by 15-20% since the earthquakes.

The new levy will put more pressure on homeowners, landlords and tenants, with average premiums expected to rise by around $NZ137 ($106) a year.

CEO Jacki Johnson says that while the levy will be an additional burden for households, IAG does not expect to lose customers, as the earthquakes have underscored the need for insurance rather than diminished it.