New fire regs costly, complex for investors

Thursday 16 March 2017

The need to consult on how to apply controversial fire and emergency levies for property owners highlights the problems posed by the new regime, the Insurance Council says.

By Miriam Bell

New Zealand’s fire and emergency services are in the midst of being merged into one organisation Fire and Emergency New Zealand (FENZ) – which will come into being on July 1 this year.

To support the new organisation there will be changes to how fire and emergency services are funded and it will be property owners with insurance policies who bear the brunt of those changes.

The levy on those insured will broaden out from fire insurance policies to policies insuring property against physical loss or damage

On Tuesday, Internal Affairs Minister Peter Dunne released a discussion paper on the proposed levy regulations and announced the public has five weeks to give feedback.

However, to date, the funding proposals and the associated regime have proved controversial with insurers and property owners alike.

Dunne himself identified some of the problems with the new regulations.

“Different types of property, including residential property, non-residential property and motor vehicles, may have different levy rates or caps,” he said.

“Some property will be exempt from the levy. Regulations will clarify how the levy will be calculated on insurance policies that cover these different types of property.”

Dunne said changes to the levy regime were likely to affect some property owners more than others.

Here in lies the problem for the Insurance Council which views the new regime as unnecessarily complex and unwieldy.

The Council’s CEO, Tim Grafton, said the fact the government has to have a consultation to figure out how to apply the levies is a reflection of the how complicated and costly the new regime will be.

“And all those costs will just end up getting passed back down to insurance holders.”

One of the major issues with the new regime is around how to apply the levy to different types of property owners – particularly in situations where there might be a mixed residential and commercial building.

Grafton said the proposal to work out levies based on the square meterage of properties sounded logical.

“But when it comes to commercial spaces, not all businesses are the same.

“There is a huge difference between, for example, a coffee shop and a high-end jeweller and that means very different levels of insurance are required.

“Additionally, there will be liabilities for insurers, brokers and the insurers if they don’t get it right as FENZ will be able to apply penalties in such cases.”

Other issues include exemptions; proposals to smooth the passage of payment for the biggest payers which could impact on to others; and the staggered nature of the rollout which will make for system adjustments each year from 2017-2019.

Grafton said the Council believes the fire and emergency charges should be funded out of general tax via a very efficient tax collector – the IRD.

“That would apply a genuinely universal principal to it. Everyone would be covered fairly – rather than the burden of payment falling on the shoulders of those who are insured.”

*The Fire Services Transition discussion paper can be read here. Consultation closes on April 19.

Read more:

Fire levies unfair for investors 

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