The prudential levy is 0.14% of premium for a big insurer and 3.1% for a small one
Source: Reserve Bank of New Zealand, Prudential levy consultation
Treasury says full pass-through of the Reserve Bank's new prudential levy lifts insurance premiums by less than 0.2% on average. The Reserve Bank's own worked examples show a 22-fold spread behind that average.
By Henry Smith · Regulation · 2026-08-14
Under the Reserve Bank's preferred design for its new prudential levy, an insurer with $4 billion of New Zealand revenue would pay 0.138% of that revenue, and an insurer with $1 million would pay 3.138%, a spread of nearly 23 to one (RBNZ, Prudential levy consultation paper, Table 15, page 32, retrieved 20 August 2026). Treasury's published estimate that full pass-through raises insurance premiums by less than 0.2% on average is an average across that spread.
We read the consultation paper. We were not briefed and we spoke to nobody.
What the Reserve Bank published
The Reserve Bank opened consultation on a prudential levy on 11 August 2026. Submissions close at 5pm on 16 October 2026, Cabinet decisions are expected in early 2027, regulations would be gazetted around June or July 2027, and the levy would take effect in August 2027 (RBNZ, retrieved 20 August 2026).
The levy recovers the Reserve Bank's prudential regulation and supervision costs. The consultation paper estimates recoverable costs of $68.1 million in FY2027/28, $69.5 million in FY2028/29 and $70.9 million in FY2029/30, an average of $70 million a year and $209 million over three years. Allocation between sectors is set by the number of frontline supervisors working on each: deposit takers 54%, insurers 39%, financial market infrastructures 7%. That gives insurers $26.6 million, $27.1 million and $27.7 million across the three years, or $81 million in total (RBNZ consultation paper, Tables 2 and 3, pages 16 and 20, retrieved 20 August 2026).
The Reserve Bank proposes no exemptions by insurance type. It states plainly that it does not consider exemptions warranted depending on whether insurers offer general, health or life insurance, and recommends no minimum size threshold either.
Four options are set out for splitting the insurance sector's $27.3 million a year across what the paper expects will be 66 licensed insurers once pending changes to the Insurance (Prudential Supervision) Act take effect, down from 81 today. Option 1 is a flat $413,636 each. Option 2 uses revenue bands. Option 3 is a flat rate of 0.14824% of gross New Zealand revenue. Option 4, the Reserve Bank's stated preference, combines a fixed $30,000 per insurer with a rate of 0.13749% on revenue.
Treasury's pass-through estimate is not in the consultation paper. It comes from a Stage 1 Cost Recovery Impact Statement, and we reached it through interest.co.nz quoting that document (14 August 2026, retrieved 20 August 2026). The Treasury statement itself returns a 403 to automated retrieval, so we have not read it directly. Say that where it matters: the "less than 0.2%" figure on this page reaches us through a secondary outlet quoting the primary.
The Reserve Bank, for its part, declines to estimate pass-through at all. A footnote on page 7 says the paper "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".
The average hides a 23-fold range
Take the Reserve Bank's own Table 15, which prices Option 4 at six revenue points, and divide each levy by the revenue it sits on. The Reserve Bank publishes the numerator and the denominator. It does not publish the quotient.
| Insurer gross NZ revenue | Fixed component | Rate component | Total levy | Levy as % of revenue |
|---|---|---|---|---|
| $4 billion | $30,000 | $5,499,560 | $5,529,560 | 0.138% |
| $1 billion | $30,000 | $1,374,890 | $1,404,890 | 0.140% |
| $500 million | $30,000 | $687,445 | $717,445 | 0.143% |
| $100 million | $30,000 | $137,489 | $167,489 | 0.167% |
| $10 million | $30,000 | $13,749 | $43,749 | 0.437% |
| $1 million | $30,000 | $1,375 | $31,375 | 3.138% |
The first four columns are the Reserve Bank's Table 15 (RBNZ, page 32, retrieved 20 August 2026). The final column is our division.
The Reserve Bank is explicit about why: "For the smallest entities, the fixed component would account for almost all their total payable levy." That is a design choice, defended on the ground that a minimum level of supervisory effort goes into every licensed insurer regardless of size. It is not a mistake. It does mean that Treasury's "less than 0.2%" describes only insurers above roughly $100 million of New Zealand revenue.
How many insurers sit below that line? Option 2's band table answers it. Of the 66 insurers the Reserve Bank expects to be levied, 21 have gross New Zealand revenue of $10 million or less and a further 13 fall between $10 million and $50 million. That is 34 of 66, more than half the sector by headcount, collectively accounting for 2.28% of sector revenue.
Option 2 has a different problem, which the paper prices but does not name. A band member above $1 billion pays $2,980,880; a band member between $500 million and $1 billion pays $962,166. Crossing $1 billion of revenue triples the levy, by 3.1 times, for one extra dollar of revenue.
What 39% of the levy means for life and health premiums specifically
The consultation paper gives no sector-by-product breakdown, but Option 3 makes one derivable. If a flat rate of 0.14824% raises the insurers' $27.3 million a year, then total gross New Zealand insurance revenue is about $18.4 billion. That figure is our arithmetic, not the Reserve Bank's.
The Financial Services Council reports annual life insurance premiums of $3.31 billion as at 31 March 2026 (FSC, Spotlight on Life Insurance, March 2026, published 8 June 2026, retrieved 20 August 2026). The FSC is an industry association reporting its own members' returns. Against an $18.4 billion base, life insurance is about 18% of the levy base, which would put life insurers' collective share of the levy near $4.9 million a year, or roughly $14.7 million across the three years.
Spread across the FSC's 4.00 million life covers in force, that is about $1.23 per cover per year. Expressed per premium dollar, which is what actually shows up on a renewal notice, Option 3's rate is $1.48 per $1,000 of annual premium.
What it means for your cover
If you hold life, trauma, income protection or health cover with a large insurer, the levy is a rounding error on your renewal. On the Reserve Bank's own preferred design, a large insurer's levy is 0.138% of its revenue. On a $1,500 annual premium that is about $2.07 a year if the insurer passes on every cent.
If you hold cover with a small specialist insurer, the arithmetic changes. At $10 million of New Zealand revenue the levy is 0.437% of revenue, and full pass-through on a $1,500 premium is about $6.56. That is still small in absolute terms, and it is more than three times what Treasury's average implies.
The levy is also not the largest thing happening to your premium. The Treasury impact statement, as quoted by interest.co.nz, notes home insurance premiums rose 40% in the last two years. A levy of a tenth of one percent is not what is moving that number.
The consultation is open. Submissions close at 5pm on 16 October 2026 and go to the Reserve Bank at the address on the consultation page.
The honest limits
We could not retrieve the Treasury Cost Recovery Impact Statement. It returns a 403 to automated fetching, so the "less than 0.2%" estimate and the 40% home insurance figure on this page are quoted from interest.co.nz quoting Treasury, not from the Treasury document itself. The $209 million, $81 million and 39% figures we did verify directly in the Reserve Bank's consultation paper.
Every figure in the paper is indicative. The Reserve Bank states that the $70 million average is used for illustration only and that actual levies would be calculated on finalised methodology and actual data at the end of each financial year. No option has been chosen. Option 4 is stated as preferred, not decided, and Cabinet does not decide until early 2027.
Our $18.4 billion sector revenue figure is inferred from Option 3's rate and the $27.3 million sector total. If the Reserve Bank rounded either input, the inference moves with it.
The FSC's $3.31 billion is annual life insurance premium income. The Reserve Bank levies on gross New Zealand insurance revenue for financial reporting purposes, which is not the same measure. Health insurance is a separate pool the FSC does not report in that release, so our 18% share is a floor for life and health combined, not a precise apportionment.
Nobody has yet said whether insurers will pass the levy on. Treasury modelled full pass-through as a bound, not a forecast. The Reserve Bank declined to model it at all.
Sources
- RBNZ, Prudential levy consultation
- RBNZ, Prudential levy consultation paper
- interest.co.nz, Impact of passing on prudential levy to customers would be modest, Treasury
- FSC, Spotlight on Life Insurance, March 2026
Talk to a licensed adviser about what this means for you · free, no obligation.
Explore related pages: Life Insurance, Income Protection, Health Insurance, Trauma Insurance, Technology.