We’ve heard it in Suncorp's latest financial results, now we’re hearing it in IAG's; more insurance premium increases are on their way.
IAG, in its results for the year to June 30, has reiterated those in high risk industries and regions, such as Wellington, are first in line for hikes.
The insurer's chief risk officer, Karl Armstrong, hinted at this in December, when he told interest.co.nz the rest of the country would soon stop subsidising Wellingtonians' insurance premiums.
Higher premium rates boost GWP
Looking at IAG's New Zealand divisional results, three quarters of the 5.5% gross written premium (GWP) growth (in NZ dollar terms) that its consumer division experienced in the last year, came from rate rather than volume growth.
“The AMI private motor portfolio led this growth, registering strong volume and rate increases, with the latter addressing ongoing claims inflation pressures,” IAG says.
The Australian insurer trades under the State, NZI, AMI and Lumley Insurance brands. It also underwrites insurance for ASB, BNZ, Westpac and The Co-operative Bank.
As for IAG’s business division, which represents 42% of its NZ GWP, this experienced GWP growth of 2% (in NZ dollar terms).
IAG says that while market conditions “remain competitive”, it was able to up its business customers’ premiums in FY17.
“Improved conditions were particularly evident in the regions impacted by the Kaikoura earthquake in November 2016, where strong underwriting and pricing disciplines have been maintained,” it says.
“Post-Kaikoura, the market has seen a reduction, and in some cases withdrawal, of capacity by a number of competitors. This has resulted in a significant increase in rates and high retention levels in the affected regions.”
Overall, GWP across IAG’s NZ consumer and business divisions grew by 4.3% in New Zealand dollar terms, and 7.2% in Australian dollar terms.
More cars and higher car repair costs contribute to increased claims expense
Nonetheless, at 13% (in Australian dollar terms), IAG’s NZ net claims cost growth outdid its GWP growth. Consequently its loss ratio increased from 64% to 69%.
While the claims cost growth was largely due to the Kaikoura quake, IAG says its home, contents, private motor and commercial motor claims cost was also higher than expected in FY17.
This was due to the tourist/migration boom putting more cars on the road, higher car repair costs caused by cars being more high-tech and the supply of car repairers not keeping up with demand, more meth-related property damage, and wetter weather conditions.
In response to these trends, IAG says it will keep targeting premium increases, hiking excesses, changing its internal claims processes and making better use of its approved repairer network.
IAG also acknowledges the policy changes it has made around meth contamination of homes. These include fixed payout limits and minimum excess requirements.
Kaikoura quake eats A$120m into profit
Coming back to the Kaikoura quake, this had a net cost after reinsurance of A$120m.
As at June 30, IAG had paid more than NZ$70 million to settle 37% of quake claims by number. It had settled more than half of its commercial claims from the event.
Factoring in claims from Cyclone Debbie, floods in the upper North Island, the Port Hills fires and Ex-Tropical Cyclone Cook, IAG’s NZ natural peril claims cost exceeded its A$64m allowance by A$118m.
Suncorp, in its FY17 results released earlier this month, noted similar claims cost increases, and likewise flagged premium increases to counter these.
Overall, IAG’s NZ division produced an insurance profit of A$125m in FY17, an 8% drop from the previous year.
It’s worth noting IAG’s divisional results will look different to the results of IAG New Zealand Ltd, which are reported to the New Zealand Companies Office.
Looking ahead, IAG says: “GWP growth in FY18 is expected to improve on FY17, from a combination of both volume and rate growth across personal and commercial lines.
“Ongoing assessment of rates, particularly those for high risk regions such as Wellington and high industries, remains a priority.”