New Zealand tax changes will drive life premiums beyond rises already being implemented by insurers, the Investment Savings and Insurance Association (ISI) has warned.

Under changes announced in the NZ Budget last week, the NZ Government’s new tax regime will come into force on July 1, effectively increasing the amount of tax paid by the life insurance industry.

Insurers such as Sovereign and Pinnacle have already declared life insurance policies will increase by 10-15% due to the new tax structure.

Changes to the tax system announced as part of the Budget include cuts to personal income tax, an increase in the GST, stricter rules for foreign multinationals paying tax and changes to ensure investors are taxed at the correct rate.

ISI CEO Vance Arkinstall says premiums will continue to rise over the next few years as insurers pass on additional costs to consumers.

However, he says the rising cost of life insurance is not expected to dampen growth in the sector, which has reached double digits in the past few years. The NZ life insurance sector accounts for more than $NZ1.6 billion ($1.3 billion) in inforce premiums each year.

While the ISI is broadly supportive of the Government’s tax changes, levies on insurance products are a concern.

“You do have to wonder about the merits of a government increasing tax when underinsurance is still a problem,” Mr Arkinstall told insuranceNEWS.com.au.

“Many of the participants have increased their premiums or are planning to increase,” he said. “I think that within the next few years, there may well be further increases to take into account this tax change.”

Mr Arkinstall says the NZ life insurance industry is primed for further growth, despite a high rate of business churn.

Despite rising life insurance premiums, the ISI says the tax changes should provide New Zealanders with more disposable income while encouraging saving.

“By lowering personal tax rates and raising GST the Government is signalling to New Zealanders that they should take this opportunity to save more rather than spend more, ” Mr Arkinstall said.