Have insurance? Why you may end up paying more

People who pay for travel insurance to go on a holiday overseas may end up caught up in a new levy an insurance lobby group says. Photo/Supplied.

Anyone with insurance may end up paying more tax to help fund New Zealand's emergency services, including people paying for travel insurance despite there being no direct benefit, an insurance group has warned.

The government is currently seeking feedback on how levies on insurance policies should be changed to fund Fire and Emergency New Zealand (FENZ) - a new group being established on July 1 to fund both the rural and urban fire service.

Only the urban fire service is funded through the fire levy charge on contents, property and motor vehicle insurance.

The Insurance Council says from July 1 people who have any insurance policies will pay a further 39 per cent tax to fund the formation of FENZ. Those who pay travel insurance to go overseas will also be affected by the extra tax cost from July 2018.

The Insurance Council has asked the Government to max travel insurance exempt from this levy.

The council, which represents New Zealand's major fire and general insurers, wants the government to raise the money through general taxation not via insurance policies.

"Adding to the cost of insurance with such a large tax increase is the wrong thing to do, especially when we have had a major earthquake and people need protection," it said in a recent newsletter.

But the government's discussion document claims the cost increases will be small.

"Initial modelling showed that the owner of a residential property would pay on average $15.40 more per year, although those with a property insured for less than $158,000 would pay less."

Initial modelling also showed that a small-medium sized business with $230,000 of insurance would pay $32 more per year, and a large business with $10 million of insurance, would pay $1400 more per year.

But it admits the modelling is indicative only because there are still too many unknowns about the cost of the current fire services, the costs of the new organisation, and how much the levy base will expand.

"Over the next couple of years there will be greater understanding of the costs of operating a unified fire services organisation providing both rural and urban fire services."

After its first year in operation the levy will be expanded to include material damages.

The cheapest level of car insurance - third party only - will also be changed to include the fire levy in 2018.

The government says a Ministry of Transport survey has found that 79 per cent of motorists have comprehensive motor vehicle insurance and contribute to the fire levy.

A further 14 per cent of motorists who have only third-party insurance do not contribute to the levy.

It says collecting the levy from those with only third-party insurance will ensure that 93 per cent of motor vehicle owners are contributing towards the cost of firefighters responding to a road accident.

The insurance council has also warned other types of insurance will be affected by the changes.

"A type of policy that would be caught is travel insurance. This would create undue complexity and cost to administer and the insured does not benefit from the services of the fire service."

The council says the tax will be complicated and costly to administer for insurers and their brokers and it would be better the fund the levy through the Inland Revenue Department.

"The very fact that the government has to consult to understand how you should apply the tax on insurance, demonstrates how complicated and costly it will be to administer, and shows why it would be far better to fund FENZ from direct taxation as IRD is a more efficient and less costly tax collector."

Submissions for the discussion document close on April 19.