Levies on Fire Services: New Approaches Could Impact Commercial Property Costs

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Upcoming modifications to New Zealand's emergency services funding methodology might result in notable levy increases for commercial real estate owners, consequently hiking non-insurance risks, according to industry experts.

According to projections by the Insurance Brokers Association of New Zealand (IBANZ), total levies across commercial properties could see a dramatic rise, potentially doubling under the current consultation proposals.

"Our members are already observing clients either cancel coverage or decrease their coverage level as they attempt to navigate prolonged high inflation and higher insurance premiums," says Mel Gorham, CEO of IBANZ.

"This new approach will likely make premiums less affordable, leading to more instances of underinsurance or decisions to forego insurance altogether," she further added.

The revised framework for the Fire and Emergency New Zealand (FENZ) levy is scheduled to begin on July 1, 2026, but critical decisions regarding its collection methodology are required by December 2023 to give the insurance sector ample time to implement the changes.

The suggested revision includes switching the calculation base for the levy from the current indemnity value method to the sum insured typically used in insurance policies. Presently, the current levy for commercial building insurance is calculated based on indemnity value.

Gorham points out that for older or poorly maintained buildings, the indemnity value can sometimes be as low as 25% of the sum insured, and the proposed model hasn’t thoroughly considered the full impact of this shift.

"We have been highlighting the potential affordability issues if the disparity between sum insured and indemnity value isn't taken into account," she mentioned to insuranceNEWS.com.au.

IBANZ has raised alarms that building value increases could lead to levy spikes by up to 400% by the time the changes are fully implemented in July 2026 if properties are to stay adequately insured.

The consultation document notes that the non-residential property rate would decrease marginally to NZ11.51 cents per $NZ100 insured from NZ11.95 cents. However, Gorham maintains that this reduction falls short of mitigating the comprehensive impacts, which also include expanding the levy to currently exempt assets where FENZ services are less likely to be utilized.

Aircraft
Marine vessels docked at wharves or marinas, or tethered at sea
Crops and livestock situated far from fire stations
Water tanks and retaining walls typically not susceptible to fire damage

It's worth noting that several New Zealand airports maintain their own crash firefighting capabilities funded through landing fees. Levy application to search and rescue helicopters could also increase their insurance costs.

"Search and rescue helicopters often support FENZ with firefighting operations, so the levy might ultimately be passed back to FENZ through the fees charged for their services," IBANZ indicates.

FENZ stated that it will compile the feedback received to aid the Minister of Internal Affairs in making informed recommendations. The consultation paper’s submission period concluded last week.

Published:Monday, 27th May 2024
Author: Paige Estritori

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