Brace for double-digit premium increases for IAG insurance policies

Thursday, 12 October 2023

Residents clean up in Camphora Place in Auckland's Ranui following devastating floods in late January.

Double-digit rises in the premiums paid by households would be repeated this year, but the added financial pressure on households was not resulting in cancelled policies, investors at IAG’s annual meeting on Wednesday were told.

In New Zealand, IAG owns the State, AMI and NZI brands, and is the largest general insurance company.

IAG chief executive Nick Hawkins said the company expected to achieve “low double-digit gross written premium growth” in the current financial year.

The meeting did not address the insurers’ decision to increase individual risk-based pricing for house insurance, charging owners of homes at higher risks of flood and other natural disasters higher premiums.

Chairperson Tom Pockett told investors in Sydney, Australia, that high inflation, an increase in claims from extreme weather events, and increased reinsurance costs were behind the premium rises.

However, IAG was aiming to increase its insurance margin, and lift return on equity.

The insurer was aiming to increase its insurance margin to 15%. In the financial year ending in June, its reported insurance margin was 9.6%.

West Auckland home owner Nicola Farley told a public meeting insurance company IAG had warned her it could end her flood cover. First published in March 2023.

Hawkins said the company was mindful of the impact of “significantly increased premiums”, and retention rates were holding up, with people opting to keep their policies with IAG companies.

Pockett said in the year to June 30, the gross written premium paid by its policyholders increased by 10.6%.

At the same time, shareholders received a total return of 33%, which included dividends and share price rises.

“We are ensuring that we don’t increase prices too far, but still get a return for shareholders. It’s that balance,” Pocket said.

Despite the impact of extreme weather on claims, IAG had recorded an increase in net profit after tax of 140% compared to previous year.

Some shareholders expressed their disappointment at IAG’s share price, which remained depressed at just over A$5.50, down from nearly A$9 in mid-2019.

Hawkins said the start of IAG’s current financial year had seen relatively benign weather.

A resident walks out of his flood-hit home in the suburb of Maribyrnong on October 14, 2022, in Victoria, Australia.

However, inflation continued to be elevated, he said.

Pockett said the past two years included the highest levels of peril events in Australia and New Zealand since the New Zealand earthquakes in 2010 and 2011, which resulted in over 377,000 claims.

“This combined with the inflationary effects of the world coming out of Covid, which has increased our costs of servicing claims.

“The financial year began with severe weather and floods across New South Wales leading to a high number of claims, mostly for storm damage to homes, property and vehicles.

“Then New Zealand suffered the devastating impacts of the North Island floods and Cyclone Gabrielle, all within the space of three weeks in early 2023. These are the second and third-largest events to ever occur in New Zealand and resulted in 50,000 claims.”

One shareholder criticised IAG’s climate action, and decarbonisation plan, as “woefully slow”, and challenged them to ditch fossil fuels from its investment portfolio completely.

IAG only invested in companies that derived less than 10% of its income from fossil fuels, shareholders were told.