IAG warns homeowners in fire-prone areas could be priced out of insurance

Insurance giant IAG's chief executive Peter Harmer has warned some homeowners in bushfire-prone areas could be priced out of insurance cover because of the rising costs of premiums following the unprecedented summer of extreme weather.

IAG would not turn customers away, Mr Harmer said, but with the spike in claims pushing premiums up and rising labour costs, the price of insurance may become too high in certain areas.

"Some people may not be able to afford the insurance," he said, adding that cyclone and flood-prone areas of Far North Queensland and NSW were particularly at risk. "But bushfires are fairly indiscriminate."

IAG has called for greater action on climate change after the insurer's earnings took a massive hit due to severe weather events.Credit: Sean Davey

Net profit slumped 43.4 per cent to $283 million in the December half as extreme weather events took their toll, IAG said in its half-year results on Wednesday. Sales were up 5 per cent from the previous half at $9.01 billion.

The insurer echoed Suncorp's calls for greater action on climate change after its profits plummeted amid surging customer claims for hail, fire and flood damage.

"This season has triggered broader debate and greater community concern than ever before over climate change and its impact," Mr Harmer said in a statement accompanying the first-half profit results.

"It is critical that all levels of government work with our communities and businesses to minimise the immediate and long-term impacts of climate change."

The multiple extreme weather events pushed down earnings in the December half and would further eat into profits in the current half as the insurer stepped up its natural peril claims cost assumptions, Mr Harmer warned, slashing the company's profitability forecast.

"On 24 January 2020, we revised our reported margin guidance to 14.5 to 16.5 per cent after the devastating bushfires and hail event in Melbourne, Canberra and Sydney," he said.

The insurer was again forced to lower its profits guidance for the full year by 2 per cent following heavy rainfall totalling 28 centimetres in Sydney last weekend.

"It is proving to be an exceptionally harsh perils season."

While costs for the biggest rainstorm since the 1990s would be capped at $135 million under its reinsurance program, Mr Harmer said the spike in claims meant the company had to increase its assumption for net natural peril claim costs to $850 million, up from $715 million advised in late January.

He said consumers would likely see a rise in the cost of premiums, but it was too early to say by how much.

In the meantime, IAG and other insurers will continue to lobby the government for a "multi-pronged approach" to climate change including mitigation efforts such as retrofitting Queensland homes to protect them against cyclones.

Mr Harmer said IAG had worked to reduce its exposure to fossil fuels and now had less than 0.08 per cent of its investments exposed to these stocks.

"We have to use whatever signals we can to ensure we move to a cleaner, low-carbon environment," he said.

"Simply putting [premium] prices up to reflect the changing understanding of the risk is simply not enough. We need to raise the dialogue with the government and the awareness of that risk."

IAG will pay an interim dividend to shareholders of 10¢ a share, with the franked amount per security at 7¢.