New Zealand’s insurance industry is pressing the Government to change the law on funding for fire brigades, after the country’s highest court ruled in favour of the Fire Service in its long-running battle with insurers and brokers over the fire service levy on commercial policies.

The Supreme Court last week set aside judgements by the Court of Appeal and High Court over the use of split-tier and composite policies.

The Department of Internal Affairs is reviewing the insurance levy, which provides almost all the Fire Service’s funding, and Insurance Brokers Association of New Zealand (IBANZ) CEO Gary Young is to meet Internal Affairs Minister Peter Dunne to discuss broker concerns.

The department is working on a discussion paper for funding the Fire Service.

The Supreme Court case involved just two types of commercial policy, but IBANZ and the Insurance Council of New Zealand (ICNZ) are arguing for a complete overhaul of the system, in which only insureds pay for the Fire Service.

The Fire Service took IBANZ and Vero to court in a test cast over the levy.

Split-tier policies allow insurance for a nominated value plus an excess of indemnity cover.

IBANZ and Vero argued the levy should only be calculated on the nominated value and not the excess of indemnity.

The Fire Service Commission said the levy should be calculated on the combined level of insurance, and the Supreme Court has agreed.

The composite policy argument was run on a case involving the New Zealand Ports Collective, which bought one policy from Vero for eight ports and argued only one levy was payable. It was also a split-tier policy.

The commission wanted the levy calculated on eight policies and the Supreme Court has agreed, noting the ports collective has no insurable assets and eight invoices are sent out to the ports.

The court says legislative reform is needed. It quoted the Court of Appeal saying the Fire Service Act has not kept pace with developments in insurance and the relevant section of the Act is at “breaking point”.

Mr Young told insuranceNEWS.com.au the decision at least provides certainty for the industry. But insureds with collective policies will pay more, and no one can put a figure on how much.

As a result, the Fire Service should reduce the levy of NZ7.6 cents (7.05 cents) per $NZ100 ($92.74) sum insured, he says.

“It is, of course, a tax that discriminates against those who take reasonable precautions to protect and insure their assets. Those who choose not to protect themselves will continue to be a burden on society when a disaster occurs.”

ICNZ has asked the Fire Service to confirm an earlier commitment not to apply the court decision retrospectively and to allow insurers a grace period to adjust their systems.

CEO Tim Grafton says the decision “just illustrates the complete nonsense of trying to fund the Fire Service from insurance premiums”.

The system is complex, difficult to understand and full of ambiguities, he told insuranceNEWS.com.au.

“I think there is a recognition that the system is antiquated and unfair.”