New Zealand’s Court of Appeal has rejected an attempt by the country’s Fire Service Commission to change the way the fire service levy is applied to commercial premiums.

But the three judges say the law needs to be changed to take account of composite policies.

The commission had appealed a 2012 High Court decision in favour of the Insurance Brokers Association of New Zealand (IBANZ) and Vero which found composite and split-tier policies are not “artificial in nature”.

Insurance levies fund 95% of the fire service, and the commission argued that brokers and insurers use loopholes to reduce the levy for commercial clients by breaking up contracts so the levy only applies to a lesser amount, or bundling groups of clients into a collective to buy a single policy.

The case turns on an interpretation of section 48 of the Fire Service Act, and the Appeal Court says the legislation was drafted before composite policies became common.

“Undoubtedly section 48 has not kept pace with developments in New Zealand in the structuring of fire insurance policies covering commercial properties. Notwithstanding its apparent purpose, it is fair to say that section 48 is now at breaking point.”

The Fire Service can appeal to the country’s highest court, the Supreme Court, or press the Government for legislative change. However, that is unlikely to happen this year, with the New Zealand election to be held in September.

IBANZ CEO Gary Young says the association continues to press for removal of the levy, which encourages underinsurance and non-insurance by raising the cost of cover.

“The ideal solution is for it to go to the central government because every New Zealander needs the fire service,” he told insuranceNEWS.com.au.