Consultation

The new charge on your insurer is worth about 14 cents in every $100 of premium

Source: Reserve Bank of New Zealand, Prudential levy consultation

The Reserve Bank's proposed prudential levy takes $81 million from insurers over three years. For a policyholder that is cents. For the smallest insurers it is 3.138% of revenue, nearly 23 times the rate the biggest pay, and nobody will say how much of it reaches a renewal notice.

By Henry Smith · Regulation · 2026-08-14

What this means for you If you hold life, trauma, income protection or health cover, nothing changes on your policy yet: the Reserve Bank has only published a plan, feedback closes in October 2026, and the charge would not start until August 2027. If it proceeds as proposed, the biggest insurers would pay about 0.14% of their New Zealand revenue while the smallest pay about 3.1%, and neither the Reserve Bank nor the insurers have said how much of that would show up on renewal notices. Cover held with a small specialist insurer sits behind a far higher rate than the sector average implies, though this charge is much smaller than the forces already pushing premiums up.

Written by Henry Smith · Reviewed by Smiths Insurance & KiwiSaver, licensed Financial Advice Provider (FSP712931)

The Reserve Bank wants to start charging every insurer it licences an annual fee to cover the cost of supervising them. For anyone holding life, trauma, income protection or health cover, the number that matters is this. At the largest insurers the charge works out at about 14 cents in every $100 of premium collected, and only if the insurer passes on every cent. At the smallest it is nearer $3.14 in every $100, a gap of almost 23 to one. Either way it is small next to what is already moving premiums: home insurance rose 40% in two years. And nothing changes on your policy yet. Feedback closes in October 2026 and the charge would not start until August 2027.

Those two rates are 0.138% and 3.138% of an insurer's New Zealand revenue, and they are the Reserve Bank's own worked examples for the design it prefers (RBNZ, Prudential levy consultation paper, Table 15, page 32). Revenue means what an insurer takes in from New Zealand business, mostly premiums. Turning the levy into a share of revenue is our arithmetic: the paper prints the levy and the revenue side by side but never the rate. Treasury separately estimates the levy lifts premiums by less than 0.2% if insurers hand on every cent, and it is Treasury that reports the 40% two-year rise in home insurance (interest.co.nz, quoting Treasury, 14 August 2026).

What is actually being proposed?

The Reserve Bank opened the consultation on 11 August 2026, meaning it has published a plan and is asking for feedback before deciding anything (RBNZ consultation page):

Submissions close at 5pm on 16 October 2026
Cabinet makes its decisions in early 2027
The rules are written into law around June or July 2027
The levy starts in August 2027

The levy claws back what the Reserve Bank spends supervising the firms it licences, and the bill is split between sectors by where its frontline supervisors actually work: 54% on banks and other deposit takers, 39% on insurers, 7% on the payment systems that shift money between banks. Over the three years from 2027/28 it expects to recover $209 million, of which the insurers' 39% share is $81 million, an average of about $27.3 million a year (RBNZ consultation paper, Tables 2 and 3, pages 16 and 20).

No insurer is let off. The Reserve Bank sees no case for exempting general, health or life insurers and wants no minimum size threshold, so the smallest licensed insurer pays alongside the largest. It expects 66 insurers to be licensed by then, down from 81 today as pending changes to insurance law thin the field, and it floats four ways to divide the bill between them: the same flat fee of $413,636 each; fixed fees set by revenue band; a flat rate of 0.14824% of New Zealand revenue; or the option it prefers, $30,000 each plus 0.13749% of revenue.

On the question a policyholder actually cares about, how much of this lands on renewal notices, the Reserve Bank will not say. A footnote on page 7 of the same paper says it "does not attempt to quantify the extent of any potential pass through, as this will largely reflect differences in the competitive dynamics that exist across the three sectors". In plain terms: how much of a cost reaches customers depends on competition, and the Reserve Bank will not put a number on that.

Why the average hides a 23-fold gap

The whole spread comes from the $30,000 flat fee. For an insurer with $4 billion of New Zealand revenue that fee is a rounding error sitting on top of the rate component. For an insurer taking $1 million it is almost the entire bill. The Reserve Bank is upfront about it: "For the smallest entities, the fixed component would account for almost all their total payable levy." That is a deliberate design rather than a slip, on the argument that every licensed insurer soaks up a minimum amount of supervision no matter how small it is.

The practical effect is that Treasury's "less than 0.2%" describes only insurers earning more than roughly $100 million a year here. More than half do not. An insurer with $10 million of New Zealand revenue pays 0.437% of it, three times the rate the giants pay. Of the 66 insurers expected to be levied, 21 take $10 million or less and another 13 sit between $10 million and $50 million. Those 34 firms earn 2.28% of the sector's revenue between them (RBNZ consultation paper).

What it means for life and health cover

The paper never breaks the levy down by product, but its own numbers let us estimate it. If a flat rate of 0.14824% would raise the sector's $27.3 million a year, the whole insurance sector must take about $18.4 billion in New Zealand revenue. The Financial Services Council, the life insurers' industry body, reports $3.31 billion of annual life insurance premiums and 4.00 million covers active as at 31 March 2026, from its members' own self-reported returns (FSC, Spotlight on Life Insurance, March 2026, published 8 June 2026).

Set that against an $18.4 billion sector and life insurance is roughly 18% of what the levy is charged on, putting life insurers' combined share near $4.9 million a year. Spread across 4.00 million policies, that is about $1.23 a policy a year. In the units that appear on a renewal notice, Option 3's rate is $1.48 for every $1,000 of annual premium. The $18.4 billion figure and everything drawn from it is our arithmetic, not the Reserve Bank's.

So what does this mean for me?

Nothing on any renewal notice changes because of this for at least a year. No option has been picked, Option 4 is preferred rather than decided, and Cabinet does not rule until early 2027.

If your cover sits with one of the large insurers, this is a rounding error even in the worst case where every cent is handed on: about 14 cents in every $100 of premium the insurer collects.

If your cover sits with a small specialist insurer, the rate behind your policy is roughly three times higher, on the Reserve Bank's own worked examples. That is still cents rather than dollars, but the sector average genuinely does not describe it, and the smaller the insurer the further off that average sits.

And the levy is not the thing moving your premium anyway. This charge is worth about a tenth of one percent of an insurer's revenue, against the 40% two-year rise in home insurance that Treasury itself points to. If a premium jumps at renewal, this will not be why.

The consultation is open to anyone. Submissions close at 5pm on 16 October 2026, at the address on the Reserve Bank's consultation page.

How solid are these numbers?

Firm on the totals, illustrative on the per-insurer rates, and ours wherever a share of revenue appears. We read the consultation paper. We were not briefed and we spoke to nobody.

We could not download the Treasury document. It blocks automated fetching, so the "less than 0.2%" estimate and the 40% home insurance figure come from interest.co.nz quoting Treasury, not from Treasury directly. The $209 million, $81 million and 39% figures we checked ourselves in the Reserve Bank's paper.

Every figure in that paper is illustrative. The Reserve Bank says its cost numbers are only examples, and that real levies would be set on a finalised method using actual data at the end of each financial year.

Our $18.4 billion sector figure is inferred from Option 3's rate and the $27.3 million the sector owes. If the Reserve Bank rounded either input, our inference moves with it.

The council's $3.31 billion counts life insurance premium income. The Reserve Bank charges on revenue as reported in financial statements, a different measure, and health insurance sits in a separate pool the council does not report. So our 18% share is a floor for life and health together, not a precise split.

Nobody has yet said whether insurers will pass the levy on. Treasury modelled full pass-on as an upper limit, not a forecast. The Reserve Bank declined to model it at all.

What this means for your cover

What a policy pays, how to size it, and how a rule change reaches an existing policy. Life insurance in New Zealand

Sources

Every source below was read and checked on 21 August 2026.

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