IAG share price: Insurers feed inflation spiral as Insurance Australia … – The Australian Financial Review

Rising natural peril costs and upward price pressures in building and motor supply chains mean insurance policyholders are facing another year of stiff premium increases.
The rising cost of reinsurance protection against intensifying natural perils, plus inflationary pressure caused by choked supply chains, will mean another year of home and motor insurance premium increases of 5 to 10 per cent for customers of Insurance Australia Group.
Full-year financial results released by IAG on Friday include forecasts of premium increases in the year ahead, following sharp increases in the year to June 2022.
IAG chief executive Nick Hawkins says premiums will go up again this year. David Rowe
IAG chief executive Nick Hawkins says the near-20 per cent increase in IAG’s cost of protecting against natural perils through the reinsurance market had to be passed on to customers. IAG’s natural perils allowance has risen by $144 million to $909 million.
IAG’s market presentation says its direct insurance division pushed through premium increases of 6.4 per cent in motor vehicle policies and 8.6 per cent in home policies in 2022, while the intermediated insurance business pushed through premium increases of 9 per cent.
Hawkins says the premium increases in the 2023 financial year will average 5 to 8 per cent, and the most significant increase in some lines being about 10 per cent.
Large-scale natural disasters, such as the flooding that occurred earlier this year, are actually good for IAG’s business because its customer retention rates go up.
“We’ve got growth across the organisation, particularly in our direct businesses here in Australia,” Hawkins says.
“We have a growing number of customers – our retention rates are extremely high, in fact, probably as high as I can remember.
“Retention rates are in the low 90s in motor and mid to high 90s in home through our direct businesses. So, our customer experience is very strong, and we often see that during perils and post-perils our brands really shine out.”
Inflationary pressures in the insurance sector were on the agenda earlier this week, when Suncorp revealed the biggest increases in its premiums in almost a decade.
Suncorp’s hazards costs for the 2022 financial year were $101 million more than its allowance, and it lifted its 2023 hazard allowance by $180 million to $1.16 billion.
Like most insurers in Australia, Suncorp believes there is a likelihood of a third consecutive La Nina weather system in the year ahead.
On Thursday, QBE Insurance said its half-year result and improved performance in the 2022 financial year was due to “strong” premium growth. QBE’s gross written premiums rose 17 per cent.
QBE lifted its premiums in North America by 10.4 per cent, the Australia-Pacific region by 9.1 per cent and in its international business by 7 per cent. Analysts expect a 10 per cent increase in gross written premiums for the second half.
The insurance sector is marching to the beat of its own drum, with premium rate increases coming down the pipeline irrespective of the actions taken by the Reserve Bank of Australia to kill inflation.
If a third La Nina does occur in the year ahead and it causes more severe flooding events, insurers will have to raise premiums again.
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