The Government introduced a Bill last week to delay introduction of the new fire service levy regime on material damage insurance policies, which had been slated to commence by next year.
The new regime, which is set out in the Fire and Emergency New Zealand Act 2017, marks a significant shift away from the current regime. It will provide an expansion of the types of policies covered, the introduction of general anti-avoidance provisions, a scale for penalties payable, and a reversal of the burden when disputing the levy assessment of Fire and Emergency New Zealand (FENZ). Click here for our earlier report.
Under the Act, regulations are required to give effect to the new regime. However, the complexity of the proposed changes means that it has not been possible to finalise the regulations and allow the industry to implement system changes by 1 July 2019, as currently required by the Act.
The new Bill will delay commencement of the new regime for a further two years until 1 July 2021, with the possibility that this could be brought forward. The Government has said that its current intention is to implement the new regime on 1 July 2020. In the meantime, the old regime is effectively continued under the transitional provisions in the Act.
In addition to delaying the new regime, the Bill also exempts museums, art galleries and whare taonga from the levy from 1 July 2019.
Draft regulations up for consultation
Meanwhile, the Government has released the proposed regulations for consultation. Full details of the draft Fire and Emergency New Zealand (Levy) Regulations 2018 are here. Of interest to many insureds will be a provision for levy relief where insureds are faced with a levy under the new regime that is at least double the amount that would have been payable under the old regime.
The new regulations also set out categories of exempt property and insurance, rules for the calculation of levies for mixed property policies, and the information required to be provided by levy payers in their returns.
Finally, the Government has flagged further amendments to the new regime, including:
The definition of “amount insured”. As we and others in the industry have said, this term is not commonly used in insurance policies. Most policies instead provide for a “sum insured”. The Government had intended that the industry would need to calculate “the actual level of cover” available under a policy. It has now recognised that this is onerous, and has said that the “amount insured” can be calculated on the sum insured, but only where it is both fair and reasonable and the greatest value of insurance available over the term of the contract. In our view, this new definition remains unnecessarily onerous and uncertain.
Property covered by overlapping insurance policies. The new regime will also be amended so that levies are only charged once where property is covered by overlapping insurance policies. Under the existing regime, levies are calculated on each insurance contract, regardless of whether the insured property is already insured under another contract for which levies have been paid, with the result that levies are paid twice in respect of the same property. This is a welcome change.
Bell Gully will continue to monitor the progress of the Bill and proposed regulations. If you have any questions about this update, please contact the authors or your usual Bell Gully adviser.
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.