Despite a big jump in profit, insurer IAG is set to keep up the rising pressure on the premiums we pay. Looking at the upwards rise in the company’s share price, it’s easy to see why the world’s greatest investor, Warren Buffett, bought into the company in 2015.

IAG

In fact, since the negative impact on shares of the covid lockdowns, IAG’s share price has spiked close to 75%, despite the challenges from flood, fire and other consequences of climate changes that insurers are worried about.
However, the ‘beauty’ of insurance is that when times get tough, as a group, insurers raise premiums. This explains why IAG reported a 7.9% jump in profit over the past financial year, pocketing $898 million. This was a consequence of an 11% lift in premiums, and CEO Nick Hawkins isn’t seeing any relief in the prices we pay for insurance in the upcoming year.
IAG owns insurance brands such as NRMA and CGU.
This sums up what he and other insurers are telling us about what has been happening and what the year ahead will bring:
1. Premium income (or the price you’ll pay) will rise by mid-to-high single digits or more than inflation!
2. House-fixing contractors are charging more. In Victoria, the labour cost rise was 18%!
3. Building material cost rises were close to 10%.
4. To protect IAG’s profit, these cost increases were passed on to customers.
5. Double-digit inflation for housing repairs is expected again in this financial year.
6. Car repairs will go up by 5-10% but the pricing pressure here is slowing.
Interestingly, IAG’s share price fell yesterday and the AFR’s James Eyres explained why: “Barrenjoey analyst Andrew Adams said this had missed expectations due to lower than expected investment returns… IAG also rewarded investors with a higher full-year dividend, 27¢ per share, up from 15¢ paid in 2023”.
However with predicted rising premiums, I suspect IAG’s share price will continue to head higher over the next year, unless some massive natural disaster interrupts that.