Decision

The natural hazards levy freeze saves a capped home $274 a year and defers $464 million a year onto future levy payers

Source: The Treasury, Cabinet paper ECO-26-SUB-0003: Insurance affordability and the review of Natural Hazards Insurance Act financial settings and levy settings

Treasury advised lifting the natural hazards levy on your home insurance bill from 16 cents to 24 cents per $100 of cover. Cabinet left it at 16. That keeps $274 a year on a capped home and leaves the scheme collecting about $464 million a year less than Treasury says it needs.

By Henry Smith · Premiums · 2026-01-28

What this means for you The levy line on your home insurance bill stays flat, while your insurer's own charge has risen 40% in two years. The pool of money behind that levy holds less than a third of what a major earthquake would need before outside cover kicks in. Any shortfall comes back from the same levy payers through a government loan, or from taxpayers through a grant.

Every home insurance bill in New Zealand carries a government charge called the natural hazards levy. It buys the first slice of cover for earthquake, landslip, volcanic and tsunami damage to your house and land. Cabinet has decided to leave that charge exactly where it is, at 16 cents for every $100 of building cover, even though Treasury advised lifting it to 24 cents (The Treasury, 28 January 2026, retrieved 20 August 2026).

For a home at the top of the scale, that freeze is worth $274 a year. It is the gap between the current maximum levy of $554 and the $828 it would have become (same source).

The saving has a price. At 16 cents, the scheme puts its own odds of collecting enough to cover the next five years of claims at 38%. At 24 cents those odds would be 66% (same source).

The number connecting the two is about $464 million a year of levy the scheme now will not collect. That money is not written off. If a large enough disaster drains the fund, the government has to cover it, and it gets the money back either from levy payers through a loan or from taxpayers through a grant (same source).

What did the government actually decide?

The decision sits in Cabinet paper ECO-26-SUB-0003, dated 28 January 2026 and published by the Treasury the following month. It comes from the Minister of Finance and the Minister of Commerce and Consumer Affairs (The Treasury, retrieved 20 August 2026).

It does two things. It asks the Council of Financial Regulators, the agencies that oversee banking and insurance, to spend six months examining whether home insurance is still affordable, starting with a market assessment by the Commerce Commission. And it pauses the scheduled review of the levy and the wider money settings of the Natural Hazards Insurance Act, the law behind the scheme, to restart "no later than the 2027/28 financial year" (same source).

The reason given for the pause is household budgets. Cost of living implications "were the main consideration" (same source).

Why is home insurance getting so expensive?

Home insurance prices have risen three times faster than general inflation since 2011. In the last two years alone they are up 40% (The Treasury, retrieved 20 August 2026).

People are starting to drop out. Household survey data suggests the share of homes carrying insurance has fallen by roughly 5.5% since 2017 (same source).

Why did Treasury want a higher levy?

The levy is charged on your building cover up to a cap of $300,000, before GST. A home insured for that much or more pays the maximum (The Treasury, retrieved 20 August 2026).

Treasury's view is that 16 cents is below what the scheme costs to run over the long haul. The rate that would cover those costs, which the paper calls the technical rate, is 24 cents (same source).

The reason is the ground, not the houses. In 2022 the official model of New Zealand's earthquake risk was rebuilt, and it raised the expected level of shaking by an average of 50% (same source). Treasury consulted on three options, 22, 24 and 25 cents, and recommended 24 (same source).

What does the freeze save, and what does it cost?

The paper publishes the saving and the shortfall many pages apart, and never puts them together. So here they are.

The saving: the most any home pays stays at $554 a year including GST instead of rising to $828, so a home insured at the full building cap keeps $274 a year, and a home below the cap keeps less (The Treasury, retrieved 20 August 2026).

The cost shows up in the scheme's own safety measure. The paper calls it the probability of sufficiency, and defines it as the chance that levy income covers the claims that arise over a five year review period. At 16 cents that chance is 38%. At 24 cents it is 66% (same source).

Turn those around and they read as risk. At the frozen rate there is a 62% chance the levy falls short. Even at Treasury's own rate there is a 34% chance, because a scheme built for rare, enormous events can never reach certainty (same source).

The arithmetic holds up. The paper expects the levy to raise about $927 million in 2026/27, and says moving to 24 cents would add "about $464 million per annum" (The Treasury, retrieved 20 August 2026). Check it: 24 cents is one and a half times 16 cents, and half of $927 million is $463.5 million.

How much money is actually in the fund?

The levy builds a pool called the Natural Hazard Fund, which is what pays claims after an event. On 30 September 2025 it held $622.6 million, against levy income of $853 million in 2023/24. That is under nine months of income sitting in the tank (The Treasury, retrieved 20 August 2026).

Here is the comparison the paper never draws. The Natural Hazards Commission buys reinsurance, which is cover an insurer buys from global insurers for its own worst days. That programme is worth $10.3 billion and took effect on 1 June 2025. It only starts paying once claims from a single event pass about $2.101 billion (Natural Hazards Commission, retrieved 20 August 2026).

So the first $2.1 billion or so of a major event is the fund's problem alone, and the fund holds less than 30 cents in the dollar of it. The shortfall is roughly $1.48 billion (Natural Hazards Commission and The Treasury, both retrieved 20 August 2026).

Now set that shortfall against the $463.5 million a year the freeze gives up. The levy being forgone is almost exactly the money that would have closed the gap in a little over three years.

Chart: figures from The Treasury and the Natural Hazards Commission, both retrieved 20 August 2026; the 2010 bar plots "over $6 billion" at $6 billion.

Who pays if the fund runs out?

The paper is blunt about this. If the fund cannot cover the claims, money "must be provided by the Crown through either a loan (to be repaid by levy payers) or a grant (paid for through general taxation)" (The Treasury, retrieved 20 August 2026).

So the freeze is less a saving than a schedule. The review restarts no later than 2027/28, and the scheme's funding plan has to be renewed by the middle of 2029 (same source).

Hold the rate at 16 cents through 2026/27, 2027/28 and 2028/29, and the scheme gives up roughly $1.4 billion. That is three years at about $464 million (The Treasury, retrieved 20 August 2026), and it is close to the gap between what the fund holds and where its outside cover starts.

The unspoken bet is that no event big enough to empty the fund arrives before a rebuilt levy does. If the bet loses, the same homeowners pay for the shortfall anyway, through future levies, with a government loan bridging the years in between.

What does this mean for your own cover?

The levy is one line on your home insurance bill, and it has sat at this level since 1 October 2022, when the maximum moved to $480 plus GST a year (Natural Hazards Commission, retrieved 20 August 2026).

The other line is your insurer's own premium, and the freeze does nothing to it. That part rose 40% in the last two years (The Treasury, retrieved 20 August 2026), and it is the part the regulators and the Commerce Commission are now looking at. Your total bill will keep moving with it.

The drop in people insuring is the quiet warning. Roughly 5.5% fewer households have cover than in 2017 (The Treasury, retrieved 20 August 2026), and the government scheme only reaches homeowners who hold a private policy (Natural Hazards Commission, retrieved 20 August 2026). Cancel the house policy and the natural hazard cover goes with it.

The squeeze rarely stops at the house. When a house premium jumps that fast, the covers people cut first are usually life insurance and income protection, because the mortgage lender demands house cover and nothing else. If a budget forces that trade, it is worth making on purpose rather than letting a renewal date decide.

The freeze is also a reminder that the money standing behind a claim is not the same everywhere. This scheme has a government guarantee behind its 38% figure. A private insurer has only its own capital and its own reinsurance, which is what a financial strength rating grades.

What we could not check

The paper's $554 maximum does not quite reconcile. The Commission's own website puts the maximum levy at $480 plus GST (Natural Hazards Commission, retrieved 20 August 2026), which is $552 once GST is added.

Do the sum yourself and you land in the same place: 16 cents per $100 on $300,000 of cover is $480 exactly. The 24 cent version does reconcile, because $720 plus GST is $828 (The Treasury, retrieved 20 August 2026).

We cannot explain the $2 difference, so we used the paper's own pair of figures. That makes the saving $274. On the Commission's figures it would be $276.

We read the version of the paper the Treasury released to the public, not the Cabinet minute that records the decision itself. Detail on how concentrated the insurance market is has been withheld, along with two paragraphs about work programmes, under the Official Information Act (sections 9(2)(b)(ii) and 9(2)(f)(iv)).

The freeze is a pause rather than a fresh decision on the rate. Ministers recorded an intention to stop the review, so the levy stays at 16 cents because nobody moved it, not because anyone re-set it.

One more caveat on that 38%. By the paper's own definition it ignores the money already in the fund and the outside cover bought on top, so it is not the chance the scheme goes broke within five years. Our own gap arithmetic rests on the $2.101 billion trigger point (Natural Hazards Commission, retrieved 20 August 2026), and that cover is renewed every year, so the figure can move.

The paper publishes no average home premium, so we cannot say what share of a typical bill the frozen levy makes up. And the 5.5% drop in people insuring comes from survey data the paper itself flags as limited. Its own footnote puts the share of homes insured anywhere between 83.7% and 95%, depending on the source (The Treasury, retrieved 20 August 2026).

Sources

• Cabinet paper ECO-26-SUB-0003: Insurance affordability and the review of Natural Hazards Insurance Act financial settings and levy settings, The Treasury, 28 January 2026, released February 2026
• Natural Hazard Fund, Natural Hazards Commission Toka Tū Ake
• About natural hazards cover, Natural Hazards Commission Toka Tū Ake

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