Insurer IAG tells investors house insurance premiums rising at 20% to 30%

Wednesday, 14 June 2023

Flooding on Auckland Anniversary weekend was shocking in its extent and violence.

Giant insurer IAG has been increasing premiums by around 20% on car insurance and about 20% to 30% on house insurance, a presentation to investors on the ASX Australian sharemarket shows.

IAG, which owns the State, AMI and NZI brands in New Zealand, posted a presentation for investors on Wednesday flagging “rising rate increases” as a result of high inflation and higher reinsurance costs.

It shows the car insurance premiums it is charging to New Zealand households rising by around 20%, and house insurance rising by 20% to 30%.

Despite the premium increases, it says people are staying with it, with customer retention running at 92% for AMI and State.

Households are experiencing what has been dubbed a cost-of-living crisis, with general inflation running at 6.7%, and home loan repayments having risen sharply as a result of the Reserve Bank Te Pūtea Matua having lifted interest rates.

New Zealand chief executive Amanda Whiting’s portion of the presentation showed the insurer’s strategy was to “protect margins”, and “optimise” its cost base, which included an increased use of AI in handling customer claims.

Cyclone Recovery Minister Grant Robertson speaks to media in Hawke's Bay about the latest developments in the cyclone recovery plan.

Claims in IAG’s current financial year are running at around 60% more than usual as a result of extreme weather events.

January’s North Island floods, and February’s Cyclone Gabrielle were the second and third-largest loss events in New Zealand history, the insurer told investors.

IAG had had 49,000 claims related to those two events, 30% of which had been now closed.

A presentation to investors in IAG shows the scale of premium increases homeowners have had to face to maintain their insurance cover.

The cost to the insurer, which has about 2 million customers in New Zealand, was A$284 million (around NZ$312m).

Amanda Whiting is the chief executive of IAG New Zealand.

Claims inflation had been running far higher than general inflation, investors were told.

IAG revealed motor vehicle claims inflation was “stabilising” at around 16%.

House insurance claims inflation had remained at 10% to 13%, it said.

Like Tower before it, IAG has revealed it has seen a sharp rise in motor vehicle claims that are now back to pre-Covid levels.

As well as owning the NZI, AMI and State brands, IAG sells insurance under the Lantern, Lumley, NAC and Swann brands, and provides insurance to customers of ASB, BNZ, Westpac and the Co-operative Bank, making it the largest insurer in the country.

IAG’s overall managing director and chief executive Nick Hawkins said: “Our strategy remains unchanged, and we are creating a stronger and more resilient IAG.

“We’ve made significant progress in simplifying our technology and consolidating multiple systems to create more value through digital. And we’ve developed and implemented an enterprise-wide claims management system that allows us to capitalise on the scale of our business.”

But, he said, progress had been masked by the challenging operating environment including the sudden increase in inflation which immediately affected claims costs, three years of a La Niña weather cycle amplified by climate change, and material changes in the costs of reinsurance.

“We have held our operating costs flat and implemented premium increases which appropriately anticipate future claims and reinsurance costs,” he said.

“Our New Zealand business, after experiencing the second and third-largest natural disaster loss events on record, is experiencing the elevated inflation impact on non-peril motor and home claims costs.”