Funding New Zealand’s fire services via a tax on insurance is outdated, inequitable and inefficient and has become increasingly difficult to administer, the Insurance Brokers Association of New Zealand (IBANZ) has told a review into the country’s fire services.

It says the cost of insurance in New Zealand has risen since the Christchurch earthquakes and predictions by the Fire Service Commission that the current levy rate is insufficient “means further increases, leading to less affordability and therefore reduced uptake of insurance”.

The review is assessing the fire services funding model but does not propose removing the levy, which is currently 0.76%. IBANZ and the Insurance Council of New Zealand are arguing for the charge to be dropped.

IBANZ says alternatives such as a property tax, a motor vehicle registration levy and government funding would widen the revenue pool and remove the voluntary nature of the current model.

The levy provides most of the fire services’ funding, but IBANZ says it is based on the voluntary purchase of property and contents insurance. The fire services are available to all New Zealanders but not everyone contributes to their funding.

“It is possible some parties are not paying their fair share, either electing to self-insure or simply not insure, or to partially insure or underinsure,” IBANZ says in its submission.

It says there is a poor relationship between risk and levy and no incentive for insureds to invest in risk mitigation.

“Some parties may choose to directly insure offshore and there is the possibility levies may not be paid direct by the property owner to the Fire Service Commission.”

IBANZ says as insurance programs have become more complex the levy has become harder to calculate. “It is very difficult for insurers, brokers and their clients to ensure compliance.”

The review panel will report by December 11.