Australians face more insurance rises despite cost-of-living concerns

Australian insurers expect premiums to continue rising this year despite growing concerns about affordability and the growing impact on the country’s inflation figures.

Announcing IAG’s half-year results on Friday, the company’s chief executive Nick Hawkins said he expected low double-digit premium growth this financial year to contribute to an insurance profit of between $1.2 billion and $1.45 billion for the company.

Australians have been warned to brace for higher insurance premiums.
Australians have been warned to brace for higher insurance premiums. Credit: Oscar Colman

“There’s unfortunately still quite a lot of cost coming through,” he said, noting that higher costs of building products, the greater frequency and severity of large events and higher reinsurance costs would be reflected in pricing, especially for home insurance.

It comes amid a parliamentary inquiry launched last year into the insurance sector examining issues including the affordability of insurance. And, as December-quarter consumer price index data revealed, insurance and financial services showed the highest price increases across the year, with insurance prices rising 16.2 per cent – the strongest annual rise since 2001.

Hawkins said the outlook for motor insurance premiums was better for customers on the back of lower second-hand car prices and easing inflationary pressure for parts, and that he expected high single-digit growth in premiums over the next 12 months.

“I think there’s two slightly different stories there,” he said, with property premiums continuing to increase at a similar rate and motor premium growth expected to ease slightly.

Over the half, IAG’s net profit dropped 13 per cent to $407 million. Shares in IAG fell 3.5 per cent to $6.10 a share on Friday.

Hawkins said there was a slowing down in IAG’s volume growth, with the insurer’s direct business in New Zealand going backwards and its direct business in Australia growing by a relatively modest 20,000 customers.

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“Obviously, it’s pretty tough for our customers,” he said. “We’ve had a difficult pricing environment to manage our way through. Customer retention is strong, but new business is really quite difficult.”

While IAG retained about 90 per cent of its customers in its directly distributed Australian home and motor insurance, it said the volume of insurance policies fell moderately.

IAG chief executive Nick Hawkins said motor premium growth could soften but that home insurance premiums are still set to grow in the double digits.
IAG chief executive Nick Hawkins said motor premium growth could soften but that home insurance premiums are still set to grow in the double digits.Credit: Dominic Lorrimer

However, IAG’s gross written premiums – a combined measure of premiums and volume of insurance policies – increased 12.5 per cent to $7.9 billion over the year to December, as a result of premium increases.

IAG said strong premium growth reflected more expensive claims from customers, an increased allowance for disasters, and higher reinsurance costs. Reinsurance is insurance for insurers, which helps them offload some of their risk and limit the financial hit from a major event.

Hawkins said, although reinsurance cost growth had eased on the back of greater availability, the company was still paying more than it was in previous years.

‘We’ve had a difficult pricing environment to manage our way through. Customer retention is strong, but new business is really quite difficult.’

IAG chief Nick Hawkins

QBE’s gross written premiums increased 10 per cent, driven by premium increases including a 12.5 per cent rise in the Australia Pacific region over the year to December. In the last quarter of last year, the insurer’s premiums increased 13.2 per cent, compared with 10 per cent in QBE’s North American operations and 5.5 per cent in its international operations.

QBE said this was partly a result of increased expenses and elevated catastrophe costs in the Australia Pacific region.

Shares in QBE fell 2.6 per cent after the result.

Atlas Funds Management chief investment officer Hugh Dive said the compound growth in QBE’s premium rates was very strong, but that the competitive environment was robust.

“The market that QBE operates in is big and nasty, and they’re dealing with very big competitors globally,” he said. “So if they’re priced out of whack, they’ll get no business.”

Dive said the insurance sector was not one that lent itself easily to price gouging because customers tended to switch to insurance providers with the lowest prices. “It’s not like BMW or Audi; there’s no brand,” he said.

UBS analyst Scott Russell said both IAG and QBE’s results were “on the disappointing side”, with QBE’s guidance on gross written premium growth in the “mid-single digits” surprisingly soft, given premium rate trends globally.

Russell said IAG’s insurance profit was softer than expected, with higher claims and costs outweighing stronger-than-expected investment income.

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Source: Thanks smh.com