Last week Sovereign announced it was lowering commissions and increasing premiums in response to the impact of coming changes to tax on insurance funds.

Adviser up front commissions for term life insurance YRT will be cut from 230% to 200% and premiums will be increased by 15% in response to life insurance tax increases which come into force on July 1.

If you assume a policy with premiums is $1000 a year, then commission paid at 230% is $2300.

The same policy after the tax change would see premiums increased by 15% to $1150 a year and commission paid at 200% would still be $2300.

Sovereign chief executive Charles Anderson says if adviser commissions had not come down, then advisers would have benefitted from the tax change by receiving more commission.

"This would not have been acceptable in the context that Sovereign is trying to deal with insurance tax increases equitably."

He says that this is not the case of all companies, with some increasing premiums which means advisers will have a net gain with bigger commissions on bigger premiums.

"We didn't feel that was an acceptable position."

Anderson says there could potentially be less business for life insurance advisers when the tax increases come in because of affordability issues with the premium increases.

"It is likely advisers will either sell fewer policies, work harder, or the money people pay for premiums won't increase or customers will decide to have less cover."

He says taking the likelihood of less business into account, Sovereign tried to create a compensating mix with its changes, by not making advisers better or worse off with the changes.

The premium increase only applies to new business and Anderson says Sovereign will not be making any changes to its existing book on 1 July.

"Our initial response was to not increase premiums in the spirit of wanting to support our customers, we didn't want to go out aggressively when we didn't have to."