FENZ levies burning up premiums – Grafton

FENZ levies burning up premiums – Grafton | Insurance Business New Zealand

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FENZ levies burning up premiums – Grafton

“It’s way past time government took responsibility for funding FENZ”

Earlier this year headlines announced the government had stepped in to pay for the professional firefighters wage claim and agreed to a 24% increase backdated to 2021 along with other benefits.

The truth is that was a “loan” to FENZ (Fire and Emergency New Zealand), which now wants to shift the cost to those who insure their property and motor vehicles with a 13% ex GST (excluding goods and services tax) hike to the levy premium from July 1, 2024. The government, which only contributes $10 million of about $650 million to run the service has yet to agree to this, but what’s the chance?

Recent catastrophic events speak to the value of having insurance, but treating insurance as an endless hose of funds to tap encourages people not to insure, so placing more costs back onto government.

Ten years ago, the FENZ levy on insurance customers totalled $326 million. This grew by nearly 20% to $391 million over the five years to 2017. Since then, it has surged. In the five years to 2022, it blew out by 63% to reach $638 million, around 10.4% of GWP (gross written premium) for commercial, domestic, and motor cover. If this rate of change continues, then it is set to reach over $1 billion before the end of the decade.

There is no question about the importance of the work done by the 1,767 professional firefighters and the more than 8,700 volunteer firefighters and near 4,100 other staff. That their work should be funded in the way it is, is widely accepted as unfair, out-of-step with the rest of the world, and unsustainable, but if it’s the system we have the spending needs to be well scrutinised and accounted for.

Many government buildings are uninsured, so free-ride on FENZ with a paltry $10 million contribution. That needs to be significantly increased to ease the load carried by insurance.

FENZ itself needs to have a good hard look for efficiencies of its own.

The Auditor-General recently identified several areas where FENZ should consider making savings. These include:

co-locating with other emergency services to save on building costs
acting on the findings of fire investigations to target prevention activities
looking for savings across its extensive property portfolio
fixing outdated procurement processes
closing levy exemptions such as those enjoyed by forestry owners

In the consultation document on the levy hike, FENZ says it didn’t have time to consider the implication of looking at the impact of funding the increase from its operational and capital programmes. Yet, it gave only 14 business days for insurers to respond to its proposal.

FENZ needs to make time to ensure it is operating as efficiently as possible.

FENZ also has the option to draw down some of the $198 million of cash reserves it has built up from unspent levies. This means insured people have been paying more than they should have done to run FENZ.

Ironically, the levy is collected only against those risks that are covered in case of fire, but most of its spend is on many activities unrelated to fire, such as the around one-third of calls that are false alarms.

Then there are other FENZ calls that government identifies as being of public benefit. These include attending medical emergencies or undertaking search and rescue. These really shouldn’t fall within the scope of a levy on insurance cover specifically related to fire. Where is the cost recovery from carrying out these services?