IAG’s profit up as average home insurance premiums jump 30 per cent

The country’s largest general insurer is reporting a higher profit than it did before Cyclone Gabrielle, as it has hiked home insurance premiums by an average of almost 30 per cent.

Insurance Australia Group’s (IAG)
New Zealand insurance profit rose to A$204 million ($218m) in the six months to December 2023, up from A$136m in the same period the prior year.

It experienced this growth despite losing customers, as its gross written premium rose by 20 per cent to A$1.5 billion.

IAG trades under the AMI, State, NZI, NAC, Lumley and Lantern brands, and underwrites insurance sold by ASB, BNZ, Westpac and The Co-operative Bank.

Speaking to the Herald, IAG’s New Zealand chief executive Amanda Whiting acknowledged the pressure households and businesses were under.

However, she didn’t accept the assertion IAG lifted premiums by more than was justifiable due to the storms, higher reinsurance costs and general inflation (including particularly high construction cost inflation).

“In a six-month period, it’s hard to say we’ve made more profit than we should,” Whiting said.

While IAG suffered a A$92m loss in the first six months of 2023, she noted there weren’t many perils during the second six months.

Whiting explained the insurer had to take a long-term view and prepare to face more frequent and costly adverse weather events in the future.

She said it was a matter of ensuring the insurer remained a “sustainable organisation”.

Whiting said IAG had recouped the business it lost in the final six months of 2023.

She noted the insurer lost a bunch of policies in July/August as premiums rose, and people took action to reduce their expenses.

For example, people cut their contents insurance, and decided to not replace cars damaged in the floods. They also watered down their coverage, opting for third-party only, for example, or increasing their excesses.

As for insurance cost increases and general cost increases, Whiting noted these were flattening.

Accordingly, most customers are unlikely to see the sort of premium hikes experienced over the past year.

High-risk customers should however brace for further spikes, Whiting warned.

That said, she recognised a “moral risk” would be created if people ditched their cover, because premiums were too high.

The Reserve Bank, which is the prudential regulator for the insurance sector, is keeping an eye on the cost of insurance.

Because banks require the properties they lend against to be insured, a loss of insurance cover could affect the stability of the financial system as a whole.

Speaking at an economic conference at the University of Waikato on Friday, Governor Adrian Orr said: “The insurance sector is extremely challenged.”

He acknowledged issues needed to be tackled by the industry itself, including via its pricing and capital levels, as well as by central and local governments, which are responsible for deciding where building can occur.

Stats NZ’s consumers price index shows premiums have been rising dramatically across the sector.

Home insurance premiums rose by 23 per cent between the December 2022 and December 2023 quarters, while contents insurance premiums jumped 24 per cent and vehicle insurance premiums were up 17 per cent.

Jenée Tibshraeny is the Herald’s Wellington Business Editor, based in the Parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.