New Zealand insurers and brokers have slammed the Government’s proposals for reform of fire service funding.

The Fire Service Review discussion document proposes two funding options: an “enhanced” version of the current insurance-based levy; or a mixture of insurance, government funding and a motor vehicle levy.

It rejects funding from general taxation, favoured by the insurance industry, or a property levy collected by councils.

Insurance Council of New Zealand CEO Tim Grafton says offering two narrow options for consultation effectively shuts down free and frank discussion.

“The Government has made a mockery of genuine consultation by ruling out the fairest, most cost-effective and sustainable way of funding the Fire Service,” he said.

The Fire Service costs about $NZ340 million ($318.27 million) to run, and is funded by a levy on insurance.

Insurance Brokers Association of New Zealand CEO Gary Young says key reform options have been discarded “before discussions even begin”.

Internal Affairs Minister Peter Dunne says the current insurance-based levy does not reflect the range of work undertaken by the Fire Service and can be difficult to calculate.

Under an “enhanced status quo” funding model, the levy of 7.6 cents per $NZ100 ($93.96) sum insured could be variable and apply to all building contracts for “material damage”, as opposed to just fire insurance now. The levy could be calculated on sum insured or the premium.

The alternative mixed model would combine an insurance levy, a motor vehicle levy and a government contribution to fund non-fire activities such as helping police, and to reflect underinsurance of Crown properties.

Mr Grafton says the Government is one of the biggest “free riders”, with many agencies not bothering to contribute or minimising their contributions.

The review notes Australia has property-based levies in all but two states but says this is a response to underinsurance and non-insurance, and New Zealand has higher insurance penetration.

“There are many administrative and practical issues associated with a property levy that resulted in it being rejected as a policy option,” it says.

The review says the funding base for property would be narrower than the status quo, with Crown property, churches and marae – Maori meeting places – exempt, and it would be difficult and expensive for councils to collect.

Mr Grafton told insuranceNEWS.com.au the Government is committed to a budget surplus so it is not surprising it will not fund the Fire Service from tax revenue. But councils have the systems and data to collect a property levy and the arguments dismissing this option are “pretty weak”.

Mr Young says the proposals are unworkable and show little understanding of insurance.

A proposal to levy all “material damage” policies will allow insurers to issue policies under other names or argue they do not relate to material damage, he told insuranceNEWS.com.au.

While the paper says putting the levy on the premium will reflect risk, many risks have nothing to do with fire.

A premium levy would also give the Fire Service less funding stability, because rates move in line with the market, Mr Young says.