Insurance premium pain set to ease, says country’s largest insurer

Rising insurance premiums will finally take a breather, providing relief to Australians battered by hefty price hikes over the last couple of years, according to the country’s largest insurer.

Handing down a bumper $800 million profit in the first six months to December 31, a 91 per cent surge on last year, Insurance Australia Group (IAG) chief executive Nick Hawkins said premiums should start to ease as inflation starts to cool.

IAG chief Nick Hawkins has flagged premium hikes will slow down.Credit: Rhett Wyman

“A couple of years ago we had huge spikes in the cost of everything we did – both supply chain, labour,” Hawkins said.

“We also had our reinsurance dramatically change, driven by some of the perils of the world, and all of that sort of came together in premiums … What we’re seeing now is all those things reduce.”

Hawkins pointed out that pressures on motor vehicle insurance prices have “come down a lot”, while property insurances are “still holding up a little bit”.

However, premiums will still remain significantly above inflation.

IAG, which owns the brands RACV and NRMA, has forecast premiums will grow in the “mid-to-high single digits”, but more likely “towards the lower end of the range”, which is still higher than the current consumer price index of 2.4 per cent.

Higher insurance premiums have been a key driver of inflation since the COVID-19 pandemic and the eastern floods of 2022, rising as high as 16 per cent in a year around December 2023 – the biggest annual jump since 2000, according to the Australian Bureau of Statistics.

The go forward is probably what I would call a more sort of normal environment, whereas the last two years has been abnormal

IAG chief executive Nick Hawkins

Insurance rose 1.1 per cent in the December quarter, according to the most recent ABS figures, the weakest quarterly rise since the June 2022 quarter.

Hawkins added he had not yet seen any evidence that the sweeping tariffs imposed by United States President Donald Trump were pumping up inflation, but he was keeping a close eye on it.

While the easing of premiums will be welcomed by consumers, IAG investors were perturbed by the slowdown in the insurer’s gross premium growth, sending IAG shares down over 12 per cent. The insurer’s gross premium lifted by 6 per cent in the first half of the 2025 financial year, compared to 12 per cent last year.

“The go forward is probably what I would call a more sort of normal environment, whereas the last two years has been abnormal,” Hawkins said. “I know things can change … but definitely the outlook from a customer point of view, and this is not just IAG, it’s across the industry … definitely relief compared to the really challenging few years.”

Massive flooding across Australia in 2022 fuelled inflationary pressures on insurance over the past few years. Credit: Natalie Grono

The insurer’s net profit after tax for the half year soared 91 per cent to $778 million, driven predominantly by rising premiums, a $200 million release of the COVID-19 business interruption provision, and better weather. IAG said its natural perils costs were $215 million below its forecasts.

Insurance profit also rose 55 per cent, compared to the first half of last year, to $957 million. IAG will pay an interim dividend of 12 cents per share on March 7, up from 10 cents last year.

UBS analysts said, similar to Suncorp, IAG had also flagged growing its market share amid a slowdown in premium rises.

“This points to increasing competitive tension ahead and suggests lower scope for upside underlying earnings surprises and valuation metric expansion from here,” UBS wrote in a note to clients.

Hawkins said the insurer had heavily invested in its customer service amid a crackdown by the corporate regulator on the industry. The Australian Securities and Investments Commission (ASIC) has sued IAG in the Federal Court for allegedly misleading customers about loyalty discounts.

ASIC claims IAG hiked the premiums of its loyal customers before applying the discounts. It has also taken QBE to court over similar allegations.

“Many of these issues were [as a result] of the complexity of our systems,” Hawkins said.

“We’ve replaced the platform to which we run our retail enterprise platform. We’ve invested very significant amounts of money to sort of replace multiple back office and admin assistance into one, and through that we have a lot more confidence in making sure we don’t make some of the mistakes that occurred in the past.”

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