In submissions on the Taxation (International Taxation, Life Insurance and Remedial Matters) Bill, the ISI appeared to accept the validity for the tax change, but feared its impact on New Zealand's poor rate of self-insurance.

The association has already gained an assurance from Revenue Minister Peter Dunne that parts of the Bill originally intended to be implemented from April 1 will be delayed at least until 2010.

However, the ISI is pushing for delay to coincide with an expected upturn in the economy in 2011, saying that this would be one way to counter the likely drop-off in life and other risk-based personal insurance policies written during the current recession.

A significant premium hike induced by the tax change would be likely to reduce demand even further than was already expected.

The current tax rules governing life insurance policies reflect outmoded products from the early 1990's when life policies commonly included a savings element.

The growth of cover-only policies insuring against various forms of personal risk, along with the growth of managed funds and superannuation-targeted products, put paid to that part of the life insurance business.

The new generation of risk-based policies enjoyed favourable tax status as a result, and the current changes seek to flatten the tax playing field.