Frequently Asked Question and Answers

What is the EQC levy?

All general insurers are required to collect the Earthquake Commission (EQC) levy within all personal home and/or contents insurance policies, on behalf of the EQC. The levy is shown within the total premium that you pay.

The EQC is a Crown entity that provides natural disaster cover for insured homeowners.  For more information on the EQC and the cover that it provides in the event of a natural disaster, go to www.eqc.govt.nz.

How will the new EQC levy be calculated, and how will it compare with the previous calculation?

The EQC levy that homeowners pay as part of their insurance premium will increase from 5c per $100 of insurance cover to 15c per $100 of insurance cover.

The maximum EQC levy that a homeowner will pay per residence for their house and contents, including GST, will rise from $69 a year to $207 a year.

To give an example, consider a homeowner with a house that is insured for $300,000 and contents insured for $80,000:

1. House: The EQC maximum sum insured for homes is $115,000 ($100,000 plus GST).

The previous levy was $100,000 multiplied by .0005 = $50.00. Including GST, the levy was $57.50.

The new levy will be $100,000 multiplied by .0015 = $150.00. Including GST, the new levy will be $172.50.

2. Contents: The EQC maximum sum insured for contents is $23,000 ($20,000 plus GST).

The previous levy was $20,000 multiplied by .0005 = $10.00. Including GST, the previous levy was $11.50.

The new levy will be $20,000 multiplied by .0015 = $30.00. Including GST, the new levy will be $34.50.

Adding these together, our householder was paying a total of $69.00 for their EQC cover ($57.50 + $11.50).

They will now be paying $207.00 ($172.50 + $34.50).

Why is the levy being increased?
The current levy, which raises about $86 million a year, is not enough to pay for the EQC's day-to-day operating costs, which include the cost of reinsurance, let alone the cost of rebuilding the Natural Disaster Fund (NDF), which stood at about $6 billion before the first Canterbury earthquake.

Previously this was not a problem as the NDF was generating large amounts of investment income. However with the NDF expected to be exhausted by the EQC's forecast $7.45 billion Canterbury earthquake liability and higher reinsurance costs, the current levy is insufficient to meet the EQC's long-term costs.

What is the levy increase based on?
The increase was calculated by the Government to be at a prudent level to meet EQC's operating costs and replenish the NDF within a reasonable time. However it is not based on a detailed assessment of future liabilities. That assessment will be carried out as part of a wider review of the EQC in the future.

The Government has signalled that it is possible that the levy may need to be adjusted again after the assessment.

Why not put in place an earthquake tax to pay for these costs?
The Government’s view is that this would mean that all taxpayers, regardless of whether they own a house or have insurance, would be subsidising insured homeowners who benefit from EQC cover.

The Government believes that it is better for insured homeowners, who directly benefit from EQC cover, to pay those costs through a levy.

Why has EQC's expected cash shortfall increased?
On 30 August 2011, the EQC's forecast cash shortfall, which the Government is likely to pay under the EQC's Crown guarantee, was estimated at $500 million. This estimate has now increased to $1.2 billion without a levy increase.