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Insurance Brokers Warn Commercial Property Owners Of Big FENZ Levy Hikes

Insurance brokers are concerned a proposed change to the way the FENZ levy is calculated on commercial property insurance premiums is unaffordable and will lead some commercial property owners to take the risk of leaving buildings uninsured.

A FENZ consultation on levy rates from 2026 onwards closed last week. Amongst the proposed changes is a move to calculate the FENZ levy on commercial building insurance based on the sum insured rather than the indemnity value that’s currently used.

Indemnity vs sum insured

The CEO of the Insurance Brokers Association of New Zealand (IBANZ) Mel Gorham says it is not unusual for the indemnity value for buildings that are older or in poor condition to be as low as 25% of sum insured so the difference is significant.

As the values of buildings continue to rise, feedback from IBANZ members is that levies will increase by as much as 400% by July 2026 if they are to continue to be appropriately insured.

IBANZ calculates that the total amount of levy collected across the commercial property portfolio is set to double under the proposal. Gorham says the obvious solution is to reduce the rate to reflect the calculation change, but the proposed 4% decrease is nowhere near enough.

“IBANZ members are already seeing clients cancel or reduce cover as they manage the effects of prolonged high inflation and increased insurance costs. This change will clearly impact premium affordability and lead to more under insurance or decisions not to insure at all.”

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Gorham is concerned many commercial property owners will be unaware of the impact of the proposed levy changes. “Levies on many commercial buildings are already hundreds of thousands of dollars, so the impact is substantial, and the costs will end up being passed onto customers.”

Boats, aircraft, crops and rural infrastructure no longer exempt

IBANZ also highlights proposed changes that will see categories that are currently exempt brought under the new regime even though there is little prospect of FENZ services being used to protect them.

Examples include marine vessels berthed or moored at wharves or marinas or tethered at sea; and crops and livestock which are likely to be at rural locations long distances from a fire station and difficult to access. Other examples include water tanks and retaining walls which tend not to be affected by fire.

From 2026, the FENZ levy will also apply to aircraft that operate within New Zealand. Nearly all NZ aviation insurance is placed into international markets by New Zealand insurance brokers and insured values of commercial aircraft can be more than US$100 million.

IBANZ believes FENZ stands to collect a substantially disproportionate amount of levy given most New Zealand airports are required to provide their own crash firefighting capabilities, funded through landing fees. Aircraft incidents outside of airport environments generally occur in remote areas which FENZ is less likely to be able to attend.

The change means the likes of search and rescue helicopters and light aircraft involved in emergency response will also lose their current exemption. Applying the proposed levy to an aircraft with a $10 million sum insured value will add an additional $11,000 to the annual cost of insurance. These types of aircraft are often used to provide firefighting assistance to FENZ, meaning the cost of the levy is likely to be passed back to FENZ through the fees charged for the services they provide.

FENZ funding model

IBANZ supports well-funded emergency services, delivering vital support to New Zealanders. However, it continues to be concerned about the ongoing sustainability of the FENZ funding model. FENZ is almost exclusively funded by those who buy insurance despite a much wider group of stakeholders benefiting from its services. Any reduction in the pool of policyholders due to affordability will only exacerbate the inequity.

Note: IBANZ represents more than 100 member firms across New Zealand who together collect more than half of all FENZ levies paid on property and motor vehicle insurance policies and pass it through to FENZ.

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