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EQ Commission & Fire Levies Clarified
There is a popular misbelief that any property damaged by natural disaster entitles the owner to compensation under the Earthquake Commission Act 1993. Unfortunately that is not the case. For full details refer to the respective websites for the EQ Commission and Fire Services.
EQC: The Earthquake Commission is a New Zealand government body set up under the Earthquake Commission Act 1993. The Act provides a natural disaster fund for homeowners and tenants who hold insurance.
The Commission administers and collects the premium from insurers for the fund. It also handles claims against the fund from the insurers. Cover with EQC is compulsory for all qualifying property for which a fire policy is otherwise in existence. The EQC funds reserves are at $ 4.04 Billion (June 02)
The flooding during the past few years in the Lower North Island and Bay of Plenty and in the Manawatu area caused major damage to these regions.
At least 35% of homeowners were not insured and it would be fair to say that some of the insured properties would be underinsured.
There is a popular misbelief that any property damaged by natural disaster entitles the owner to compensation under the Earthquake Commission Act 1993. Unfortunately that is not the case.
Only dwellings, flats and residential properties that carry insurance for the building and or personal belongings are entitled for cover by the EQC.
Commercial Buildings and Assets are not covered under the EQC Act
What is the level of cover provided by the EQC?
The EQC will pay out up to a maximum of $ 100,000 + GST on a damaged property and provides cover for personal belongings up to a maximum of $20,000 + GST
In many cases this will leave a shortfall, so how is that covered? Simple, the Insurer will on request of the insured charge a “Company EQ” premium. This will provide cover to the full insured value above what is paid for under the EQC Act.
How much is the EQC levy?
The Levy is set by the EQ commission and is currently at 0.05% (irrespective of the area where the insured property is located). The calculation is based on the square meter area and/or value of personal belongings or chattels
Example: A rental property is insured under the Landlord Pro Plus Cover The of the dwelling is 110 sqm. Furthermore the policy provides automatic cover for up to $ 10,000 for landlord chattels and belongings.
The levy is calculated as follows 110 sqm is converted to a value of $110,000 +$ 10,000 contents= $120,000 x 0.05% = $ 60 + GST
How are levies charged for flats or converted properties?
In these circumstances EQC levies are payable for each dwelling within the total property.
For instance a block of three flats is insured via Landlord Pro Plus. The total combined floor area is 260 sqm plus $ 10,000 for Landlord Chattels and Belongings. . Unit 1 is 85 sqm, unit 2 is 95 sqm and unit 3 is 80 sqm.
Unit 1 will be charged $85,000 + $10,000 (chattels) x 0.05% = $ 47.50 + GST Unit 2 will be charged $95,000 + $10,000 (chattels) x 0.05% = $ 52.50 + GST Unit 1 will be charged $80,000 + $10,000 (chattels) x 0.05% = $ 45.00 + GST Total EQC levies payable= $144.50 + GST
Fire Service Levies
The Fire Service levy is used to fund the New Zealand Fire Service. • Levy is payable on all insurance contracts covering New Zealand property against loss from fire. • Goods and Services Tax (GST) of 12.5% is payable on all levy payments • The levy rate is reviewed annually by the Minister of Internal Affairs. Ironically this is what it states on the Fire Services Website “The NZ Fire Service actively monitors all owners of New Zealand property to ensure that they pay the correct levy. The Fire Service Act sets out that failure to pay levy or the correct amount of levy will result in the charging of interest and surcharge on any unpaid sum.” Yeah Right !
The reality is that at least 35% of all NZ residential properties are not insured and do not contribute to the Fire Services Levy but are serviced nevertheless without any penalty. This is true to a lesser degree for Commercial properties. An estimate by the NZ Insurance Council puts the number of Commercial Entities not insured in the vicinity of 25%.
A blatant example of how unfair the system is in our PC world (there is strong support to levy FSL through rates rather than through insurance premiums) is the case where in an inner suburb of Auckland a violent mini tornado, ripped roofs of from several house within close proximity of each other.
The fire brigade turned up to assist and asked each owner if they were insured. The ones that were not insured were given assistance first!! The calculation for fire services levies are calculated similar to the EQC levies although the rate is currently 0.73%
In summary
When you receive a policy from your insurance company you will see the following items: • Company premium • Company EQ • Fires Service Levy • EQ Commission levy • And not to forget of course, a tax over all the levies via the GST
For full details about EQC and FSL visit their websites at http://www.eqc.govt.nz/ http://www.fire.org.nz/
Karel Polman 1
