Pinnacle Life calculates that insurers will need to increase life insurance premiums by around 20% on new policies sold from July 1 to neutralise the effect of the tax change on bottom-line profitability. 

However no insurer has made increases of this magnitude.

Pinnacle Life partner Ed Saul says Pinnacle plans to increase prices on new policies by 10% from July 1, followed by several small increases of less than 3% over the next three years until margins are restored to previous levels.

"Pinnacle Life will honour its commitments to all existing policyholders who have already been told what their premiums will be for the next five years and whose policies fall under the grandfathering provisions of the new legislation," he says. 

Saul says Pinnacle is "fully committed to maintaining its position as the lowest cost life insurer in New Zealand."

"Pinnacle Life's historical proposition to replace other company's life insurance policies for 20% lower premiums, subject to good health, will continue unchanged."

Pinnacle Life managing partner, Noel Vaughan, says that any insurer that increases premiums on new policies by less than around 20% in the current year will need to further increase premiums in subsequent years to claw back margins.

"We note however that few insurers are mentioning anything about further increases so it's possible these insurers are withholding this information from consumers for the time being."

He says there is no justification for life insurers to immediately increase premiums on their existing policies.

"The new tax regulations only apply to new policies sold after 1 July 2010. Pre-existing policies on the other hand are tax-exempt (grandfathered) for a period of at least five years."

"Increasing premiums on pre-existing policies suggests some insurers are planning to extract additional revenues from existing customers to cross subsidise losses on policies for new customers. "