Insurance Australia Group chief executive Peter Harmer says the insurer will try to negotiate with manufacturers over the the "exorbitant" cost of spare parts, encourage customers to use its in-house repairer network and increase premiums as it battles to contain surging costs coming from expensive-to-fix new cars.

IAG said on Wednesday that while its full-year profit had climbed 48.6 per cent to $925 million, its underlying margins took a battering on higher-than-expected motor vehicle claims in Australia and New Zealand.