Aussies shopping around for cheaper insurance, as market watchers warn of intervention

More shoppers are switching away from major insurers Suncorp, Allianz, and IAG on the back of price rises.

Aussies are seeking cheaper insurance amid rising prices.

Runaway insurance prices are driving a surge in consumers shopping around for cheaper policies, but analysts are warning a run-up in premiums presents the risks of regulatory intervention.

In a note to investors, Macquarie analysts warned claims inflation was clearly still a challenge for insurers, driving prices higher, but noted global reinsurance markets were becoming more favourable.

Macquarie analysts said these price challenges were proving winners for smaller insurers like Youi, owned by South Africa’s OUTsurance, and other rivals who were picking up business from major insurers IAG, Suncorp, QBE, and Allianz.

Youi, which launched in 2007, reported 24 per cent growth in gross written premiums across its personal lines business over the second half of the financial year.

This came at the expense of rivals, in addition to price rises passed through to the insurers customers.

IAG lifted premiums across its personal lines by 15.9 per cent, while Suncorp increased premiums by 12 per cent.

“Youi has previously mentioned its growth was more dependent on switching levels across the market (while general price rises are a more important metric for larger peers),” Macquarie analysts said.

“As affordability becomes more of an issue, this could increase market churn and spur additional growth for the challenger brands.”

Insurance industry sources said customers were increasingly shopping around for new cover, taking advantage of discounted rates for new customers.

However, other insurers including IAG largely refuse to provide discounts to new customers, instead only offering existing long-term or multi-policy clients better deals.

Macquarie analysts said a softening in reinsurance markets had improved Youi’s recent renewal of its cover.

Reinsurance is cover purchased by insurers with global reinsurers to pick up losses above a certain amount in the event of a significant number of claims from a catastrophic event.

But reinsurance markets have significantly worsened over the past five years, with insurance sources warning prices were up almost 40 per cent over the period.

This has come as reinsurers have been hammered by years of natural catastrophe losses.

The latest floods to hammer eastern Europe are expected to further squeeze reinsurers.

Almost 65 per cent of the cost of home insurance policies now reflects the expense of reinsurance and natural catastrophe cover.

Citi analyst Nigel Pittaway said IAG and Suncorp were both enjoying strong “earnings momentum” as the insurers push price rises ahead of inflation.

Shares in IAG are up 34 per cent over the past 12 months, hitting $7.72 on Wednesday, while Suncorp closed at $18.35, up more than 31 per cent over the same time period.

Mr Pittaway said rival ASX-listed insurer QBE had been oversold, warning the insurer was trading at an “almost irreconcilable” value given the performance of other insurers.

QBE shares are up nearly 11 per cent over the last 12 months, closing at $16.74 on Wednesday.

“The outlook for IAG still looks strong, with the full impact of recent price rises soon to earn through and claims inflation continuing to moderate,” Mr Pittaway said.

“In our view, earnings momentum for the domestic insurers, IAG and Suncorp, still looks strong, while QBE continues to trade on inexpensive multiples and where sentiment may be too bearish.”

But Mr Pittway said falling interest rates present a risk to insurer earnings, but noted this may be offset by rates greater than inflation.

The Citi analyst also said the increase of prices presented the risk of regulatory intervention.

A parliamentary inquiry into the insurers' response to the 2022 floods is due to report by October 18.

“For now, there appears to be nothing overly concerning, and the industry is hopeful that the reasons for such material rises are well understood,” Mr Pittaway said.