Upcoming changes to the Fire Service Levy

Fire Service Levy

At Penberthy Insurance, as part of being your trusted Insurance Brokers a key service requirement for us is to keep you updated with any changes with the insurance industry that might impact you or your business.

To that end, the following information is simplified to give you a better understanding of the imminent changes to the Fire Service Levy that you pay as part of your overall insurance premium. Please note that the Fire Service Levy is a government tax applied to all contracts of insurance covering New Zealand property.

As you are probably aware, the Fire Service in New Zealand is primarily funded by means of a levy charged on property, contents and motor vehicle insurance. This is unlike most other countries in the world where the emergency services are funded by central or local government.

From the 1st of July 2017 the New Zealand Fire Service, the National Rural Fire Authority and 38 Rural Fire Authorities will form a new and revamped organisation called Fire and Emergency New Zealand (FENZ).

The transition costs associated with this new organisation are estimated to be in excess of $300m over four years and the government are looking to pass this cost onto policyholders by increasing the current levy charged by 40% on 1 July 2017.

Here are a few key questions answered about the Fire Service Levy changes to help you and your business extinguish any confusion with the changes to levy pricing and calculation.

How will this change affect my insurance?

Under the Fire Services Act, the Fire Service Levies are paid by the policyholders with a specific Fire Service Levy (FSL) cost added to your insurance program. This is especially relevant for any Commercial Property, Residential House, Contents and Motor Vehicles policyholders.

The changes will mean there will be a rate increase for the FSL, which effectively means your total insurance cost will increase as a result.

How much more will I have to pay?

The levy setting process was undertaken in late 2016 and following a recommendation from the Minister of Internal Affairs to Cabinet the 40% increase was approved.

The new rates will come into effect from 1 July 2017.

In a nutshell:

Residential Properties – Prior to 1st July 2017 each residential unit was paying $76 per unit and $15.20 on their contents insurance. From the 1st July 2017 this will increase to $106 per residential unit and $21.30 on the contents.

The average policyholder with one house and contents policy will be paying an extra $41.50 per year plus GST.

Non-Residential Properties – Previously the FSL charge was 7.60c per $100 insured. From the 1st July 2017 this will increase to 10.60c per $100 insured – an increase of 40%.

For a building or plant or contents worth say $1,000,000 this equates to an extra $300 per year, $5,000,000 is an extra $1,500, $10,000,000 and extra $3,000 (all plus GST) and so on.

Vehicles – Vehicles less than 3.5tonne were being charged a flat rate of $6.08 per vehicle, but from 1st July 2017 this will increase to $8.45 flat rate per vehicle. Vehicles 3.5 tonnes and over will pay a FSL fee at 10.60c per $100 sum insured.

Why are the Fire Service Levy rates changing now?

95% of the Fire Service operations are funded by the levy charged to policyholders, although non-fire activities are now at 38% and increasing eg flood, chemicals, accidents etc.

The rate of the levy hasn’t increased for several years despite inflation and the wider scope of services undertaken by the Fire Service. The Commission states it will cost $535 million to operate FENZ in the year starting 1 July 2017 and after allowing for other resources of funding, the Fire Service must then generate $483 million in levies.

Will we see further increases?

Yes, in the future, it has been proposed by the Fire Service that levies on commercial properties be charged on the sum insured, not the indemnity value that has previously been the case. This will have a significant impact on older properties in particular. For example, a building with a replacement value of $10m but an indemnity value of $5m will be paying the following FSL:

July 2016 – $3,800 ($5m x 7.60c)
July 2017 – $5,300 ($5m x 10.60c)
Future? – $10,600 ($10m x 10.60c)

Who are FENZ?

A new entity created which merges The New Zealand Fire Service, National Rural Fire Authority and 38 other rural authorities into a single entity called ‘Fire and Emergency New Zealand’ (FENZ). One of the aims of FENZ is the recognition that historically the fire service offered a broad range of other services beyond firefighting, and so this new entity and delivery incorporate all those services (both fire and non-fire related) as part of this new regime.

What can we do?

The changes to this levy which come into effect on the 1st July highlights the need to take the time to understand how this will impact your business and ensure that the changes form part of your discussions with your insurance broker when reviewing your insurances, to factor in the change and formulate a plan to minimise the impact.

If you’d like to discuss how this change directly affects your policies, please don’t hesitate to contact your broker.

For further information, you can visit www.firelevy.co.nz which has more in-depth information surrounding the changes.

Penberthy Insurance and Mortgages
Penberthy Insurance and Mortgages

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