New Zealand insurance brokers’ peak body is going to court to test allegations that some insurance policies are “cheating” in the way they apply the fire services levy.

The Insurance Brokers Association of New Zealand (IBANZ) says it wants to end “years of uncertainty for brokers and their clients” with its action in the High Court seeking a declaratory judgement.

CEO Gary Young says insurers and brokers have been accused by the NZ Fire Service of trying to avoid levy payments on collective insurance programs, where several related organisations jointly take out a property policy, and three-tiered excess of indemnity policies, where brokers may calculate the fire cover separately from other elements.

“The fire service says that’s cheating and could ruin their income stream,” Mr Young told insuranceNEWS.com.au. “The legislation governing the levy is outdated and has loopholes all over it. We hope this test case will clarify such issues.”

The case is expected to be heard within the next few months.

Mr Young says the New Zealand insurance industry believes the levy system – which is imposed at a rate of 0.076 on the indemnity value/sum insured – imposes a cost only on responsible individuals and organisations that insure.

“It increases the cost of cover and leads to underinsurance and non-insurance, as we’ve seen all too clearly in Christchurch.”

He says the New Zealand industry would prefer to see fire service funding coming directly from consolidated revenue.

“This issue was last looked at about four years ago, but the local councils kicked up a fuss and it has been in the Government’s too-hard basket ever since.”