The Insurance Council of New Zealand (ICNZ) says the country’s fire service funding model is “blatantly unfair” and “well out of step” with international best practice.

It follows the Government’s decision last Friday to retain the fire services levy on insurance.

Internal Affairs Minister Peter Dunne announced funding of $NZ303 million ($276.53 million) over five years to combine urban and rural fire services into one group from the middle of next year.

The new organisation will be known as Fire and Emergency New Zealand (FENZ).

The levy on contents, property and motor vehicle insurance will account for most of the funding package, which comprises an increase in the fire levy of $NZ161 million ($146.79 million) over three years from 2017/18; $NZ30 million ($27.35 million) of Crown funding over three years from 2017/18; and a $NZ112 million ($102.11 million) capital injection to be repaid over the next 10 years.

From July 2018 the fire levy will be broadened to include insurance on material damage, not just fire damage, to better reflect the range of services FENZ will provide. The fire levy on motor vehicle insurance will be extended to include third-party cover.

Mr Dunne says the new funding arrangements are “much fairer” and will ensure “large and small property owners and most motorists will pay their fair share”.

ICNZ CEO Tim Grafton disagrees.

“We’re naturally disappointed the Government only wants to tax people who take out insurance and [will] allow those who don’t insure to be freeloaders,” he said.

Mr Grafton says a more equitable option would be to remove the levy from insured drivers and apply it to the annual licensing fee, so all road users pay.

“The real problem that is not tackled is that it still leaves the 10% of drivers who do not insure themselves not paying to fund the fire service,” he said.

However, ICNZ does see positives in the Government’s funding package, and has welcomed “some improvements… to a flawed system”.

“We welcome the greater clarity provided by applying the tax to all insurance policies for damage to property,” Mr Grafton said. “This will simplify the administration and limit avoidance.”

Insurance Brokers Association of New Zealand (IBANZ) CEO Gary Young told insuranceNEWS.com.au he also welcomes the simplification of the levy but remains “very disappointed that responsible members of the public who buy protection are penalised for doing so”.  

Mr Young is also critical of applying a levy to third-party motor insurance, noting that “these policies cover liability not property”.  

“The obvious solution has been avoided. Instead the insurance industry carries the cost of collection instead of the motor vehicle registration system,” he said.  

“The latter would also have been fairer given more cars are registered than are insured.”