Macquarie warns insurers will keep lifting prices for up to 18 months

A new report warns that insurers will keep up a rapid pace of premium price rises for the next 12-18 months.

Insurers have raised house policy premiums nearly 8 per cent in the 12 months to December. Picture David Clark

Home insurance premiums have leapt almost 8 per cent in the past year and prices for Suncorp policies are steeper than at its largest rival, Insurance Australia Group.

That’s the conclusion of price tracking by Macquarie brokers – who say home insurance policy prices with Suncorp have risen by 11.6 per cent in price, and by more than 21 per cent at its GIO brand.

Increases in prices for new customers accelerated in the final three months of the year, according to the Macquarie tracking.

The bank’s analysts collected more than 1000 samples across all states and six of the largest insurance brands in the country – Suncorp, AAMI and GIO, and IAG’s NRMA, RACV and Coles.

“Front-book pricing accelerated in the December … quarter and is now slightly ahead of back-book repricing following six straight quarters where it was below, while retention levels for most products remain at all-time highs,” the brokers told clients in a note published this week.

Separately, Macquarie said its tracking showed the pace of repricing for business insurance policies remained “near all-time highs”.

“QBE and Hollard offered ‘rollover terms’ (ie. price freezes) to customers in the June 2020 and September 2020 quarters, which softened the headline rates in those periods – which were then recaptured in the corresponding quarters in 2021,” the note reads, adding that packages had risen 10.3 per cent in the year.

The bank said the rise showed “growing claims but also higher payroll costs”, noting businesses in Western Australia accounted for two thirds of the workers’ compensation policies.

IAG chief executive Nick Hawkins told The Australian on Thursday that the insurer was seeing claims and costs inflation.

“All the things we’d expect and against that we do have higher investment income and yields are up with interest rates up,” Mr Hawkins said. “It’s not obvious at the moment to me that we’re seeing it moderate a little bit but I don’t see it turning and so the outlook at the moment is to continue to see pricing flow through the market.”

Insurance premiums are on the rise, along with water levels. Picture: Getty Images

An Insurance Council of Australia spokeswoman said costs growth projected in Macquarie’s analysis was “broadly in line with inflation figures generally”

“Insurers are working hard to keep downward pressure on price increases,” she added.

The run of policy premium rises comes as the industry faces the impact of elevated natural disasters in recent years, which have hit profits and pushed down shareholder returns.

Suncorp says it is facing as much as $530m in natural hazards claims from weather events between July and October 2022 after it was hit with $1.08bn in natural hazards claims in the 12 months to June 30, $256m more than it had budgeted for.

IAG reported a $347m net profit after tax in August on almost $13.3bn in gross written premium. It was stung by $1.1bn in natural perils claims which were almost $354m above expected levels.

Despite the pressure in home lines, Macquarie brokers noted pricing was proving more punishing in commercial lines.

Macquarie analysts found 13.9 per cent lift in premiums across commercial lines for small and medium-sized businesses in the 12 months to December, headlined by spiralling workers’ compensation policy costs.

Macquarie reported pricing on commercial car insurance was up 10 per cent in the 12 months to December. But the bank’s analysts noted repricing had stabilised in the December quarter.

Pricing on compulsory third party insurance was flat in the 12 months, down 0.1 per cent. Macquarie said IAG’s CTP pricing was down 3.6 per cent, but Suncorp benefited from repricing in NSW where premiums were up 1.9 per cent.

Average premium price rises for small and medium-sized policies were up 13.9 per cent in December. This was a lift on the 10.6 per cent recorded in June 2022, marking an acceleration of pricing across the insurance landscape.

Macquarie said pricing across commercial lines of insurance were at all time highs, but analysts expect the heat to dissipate in the next six to nine months.

But the analysts warned price rises across all insurance lines wouldn’t come to zero for at least another 12-18 months, according to “industry feedback”.

In its note, Macquarie said the industry had a “positive outlook”, with customer retention remaining at “all-time highs across most products”.

“Parts inflation, labour cost inflation and reinsurance costs are each contributing to an extension of the premium rate cycle,” it read. “Repricing trends will be positive for all insurers.”

Originally published as Macquarie warns insurers will keep lifting prices for up to 18 months