Insurance Australia Group signaled a hike in insurance premiums for fiscal 2024 amid inflationary pressures, higher reinsurance and natural perils costs.
IAG, known for its major insurance brands NRMA and CGU, said it is increasing natural perils allowance by 26 percent to $1.147 billion (US$731 billion), up from $909 million in 2023. The company estimates that around 20 percent of the premiums it collects now cover reinsurance costs and the perils allowance.
“FY23 was another significant perils year, and we saw the devastating impacts of multiple large-scale events across Australia and New Zealand on our customers and communities. We are now moving to warmer and dryer conditions which should see a shift away from rain-dominated claims,” IAG Managing Director and CEO Nick Hawkins said.
The company reported a net profit of $832 million for the 12 months to June 30, up from $347 million, benefiting from a post-tax business interruption provision release of $392 million. IAG said that higher inflation in home and motor claims costs and natural perils allowance led to a decline in underlying insurance margin to 12.6 percent from 14.6 percent.
Higher Insurance Premiums Ahead
This comes as the Insurance Council of Australia warned of increasing costs of insurance, with home insurance particularly being under significant pressure.“Persistently high inflation and significant increases in reinsurance costs are continuing to increase costs for insurers into 2023,” the ICA said, noting that for every dollar collected in 2022, the cost for insurers was at $1.04.
The ICA said that there were more than 300,000 disaster-related claims lodged from four declared insurance events across Australia in 2022, translating to more than $7 billion in insured losses. For that year alone, insurers paid out $36.5 billion in claims.
The ICA noted that insurance providers struggled with low profits from 2020 through 2022 and are now seeing improvement largely attributed to a turnaround in investment returns and improvements in some commercial lines.
“Because of a series of very significant extreme weather events since the Black Summer bushfires, the sector and its customers have experienced several very challenging years,” the council said. “Insurers must carefully calibrate costs through volatile weather periods to ensure the product remains in reach of as many Australians as possible.”
Destructive Fire Risks Foreseen
The Australian Research Council Centre of Excellence for Climate Extremes commissioned research from the University of New South Wales (UNSW) Canberra and the Australian National University, which showed that cold fronts drastically exacerbate bushfires and said that based on evidence, the risk of extreme bushfire seasons, like the Black Summer, will increase in the future.“All the evidence points to worsening bushfire conditions in the decades ahead due to greenhouse gas emissions causing climate change,” UNSW Canberra Associate Professor of Climate Science Sarah Perkins-Kirkpatrick said, referring to the destructive bushfires being exacerbated by cold fronts.
“There is an increased likelihood of hotter and longer heatwaves, which could lead to greater drying out of fuel loads and more devastating bushfires.”
In a separate report, UNSW Canberra Bushfire Dynamics Professor Jason Sharples said that the El Niño conditions do not necessarily mean Australia would have another bushfire situation but the hotter temperature, less rainfall, and dry weather can cause destructive fires.
“The fact that our worst bushfire season on record didn’t coincide with an El Niño suggests climate change is acting, and we should prepare for worsening bushfire conditions in the years ahead,” Sharples said.
