Insurance Australia Group has indicated that above-inflation premium increases will persist for the foreseeable future, coinciding with its preparations to launch a fresh bid for Western Australia's largest general insurer, RAC Insurance.
Persistent Premium Pressures
Reporting a decline in half-year profit on Thursday, IAG cautioned that while the pace of premium hikes has slowed from post-COVID peaks, customers renewing home and motor policies should still anticipate rises of at least 5%. This rate significantly surpasses the annual inflation figure of 3.8% recorded in December, underscoring the ongoing challenges insurers face due to elevated repair costs for homes and vehicles.
Over the past five years, insurance has become a substantial contributor to household cost-of-living pressures, with premium rates continuing their upward trajectory. IAG chief executive Nick Hawkins addressed analysts, noting, "Compared to where we were a couple of years ago, the premium rate environment is obviously better." However, he emphasized that inflationary pressures within the business persist, with current rate increases tracking at "mid-single digits in motor, more than that in property."
Renewed Bid for RAC Insurance
IAG is gearing up for a new attempt to acquire RAC Insurance, following the Australian Competition and Consumer Commission's rejection of a $1.35 billion sale agreement in December. The ACCC blocked the deal on grounds that it would likely severely reduce competition in WA's insurance markets, potentially leading to higher premiums.
The ASX-listed insurer, which operates major brands such as NRMA and CGU, plans to reapply under the ACCC's new mergers regime, which took effect on January 1. While Mr. Hawkins was unavailable for immediate comment on the RAC pursuit, he reiterated in the company's results statement that IAG remains committed to the proposed alliance.
Financial Impact and Weather Events
The group's interim results revealed an 18% drop in net profit to $505 million, attributed in part to a $174 million charge covering a series of damaging weather events in Queensland. This followed IAG's acquisition of RACQ's insurance division in September.
Between September and the end of December, Queensland experienced 17 separate weather events, resulting in a gross cost exceeding $800 million for RACQI, according to IAG. This financial hit highlights the broader industry challenges posed by climate-related incidents, which continue to drive up costs and influence premium pricing strategies.
As IAG navigates these complexities, the combination of persistent inflationary pressures and strategic acquisition efforts underscores a critical period for the insurance sector, with significant implications for consumers and market dynamics alike.
