Double hit for insured home-owners
25 May 2017
First it was a 40% increase in the Fire Service levy from 1st July, now on top of that comes a 33% increase in the EQC levy. That comes to a total increase for house, contents and a car of $113 per annum.
People may ditch or reduce their house and contents insurance cover in the wake of a levy increase, the Insurance Council of New Zealand is warning.
The government announced in today's Budget that it would be increasing the rate insured homeowners pay from 15c per $100 of cover capped at $207 a year to 20c per $100 to a maximum of $276 per year.
The increase could result in people paying up to $69 more per year on their insurance.
Tim Grafton, chief executive of the Insurance Council of New Zealand - the body which represents insurers - said the EQC levy increase came as no surprise.
"We have known as a result of the Kaikoura quakes and the Canterbury quakes that the natural disaster fund has been drastically reduced. From a government perspective it makes sense."
But he said the downside of the levy increase was that it came in a year where the government was already planning a 40 per cent increase in the fire service levy.
The fire service levy increase comes in from July 1 while the EQC levy increase will come in on November 1.
Grafton said by the end of the year home-owners with house and contents insurances could be paying $385 in taxes and levies a year before they had even started paying for any insurance.
He said the risk of increasing insurance costs was that people dropped their insurance and it was a particular risk for low income people.
"There is an increasing risk they will not insure or will under insure," he said.
People who have no insurance are not eligible for EQC payouts if there is an earthquake.
He said that presented a moral hazard to the government.
Grafton said the fire service levy increase should be coming out of general taxes, especially as the service was used by all, not just people who paid insurance.
"Then there wouldn't be such a disincentive to insure, particularly for low income people. Every dollar counts for them."
Finance minister Steven Joyce said the EQC levy increase would help to top up the National Disaster Fund, which pays out claims related to earthquake damage.
The fund has paid out $9.5 billion so far in claims to people affected by the Canterbury earthquakes. Another $550m is expected to be paid out for claims related to the Kaikoura Earthquake.
That had exhausted the fund's reserves, Joyce said.
"The Earthquake Commission has a Government guarantee and $4.7 billion in re-insurance cover, so homeowners will be covered if there is another natural disaster.
"But we need to start the process of replenishing the fund so it is available to contribute to future natural disasters."
Earthquake Commission Minister Gerry Brownlee said under existing settings, and barring no further natural disasters, it would take 30 years to reach the EQC's reinsurance excess of $1.75 billion.
Under the higher levy, the fund would be restored to this level within 10 years.
- NZ Herald