Companies cut back on insurance
The trend, identified by Insurance Australia Group, comes as the sector faces a tougher growth environment after enjoying bumper profits last financial year.
In a sign of softening economic conditions, IAG chief executive Mike Wilkins said a growing number of customers - mostly small and medium-size enterprises - were opting for products that came with a lower premium.
"What we are seeing, particularly in the SME space, is people having a good look at their insurance protections and making conscious trade-off decisions, including taking some higher excesses, because that translates to lower premiums," Mr Wilkins said.
There had also been an increase in the number of households - the largest market for IAG and Suncorp - choosing to cut premiums, though the trend was "much more pronounced" in the commercial sector, he said.
"People are just very conscious of their expenses and I know for some businesses it's tough," Mr Wilkins said.
"So what they're doing is they're saying, 'Look, I'm prepared to trade some of this off'."
The three big ASX-listed insurers - QBE, IAG and Suncorp - last week signalled softer rates of domestic growth in revenue from premiums in the year to come.
While IAG and Suncorp flagged more premium growth after paying out sharply higher dividends, market analysts are debating whether the sector is reaching its peak rate of profitability after a surge in premiums in recent years.
Home cover rates in particular have risen by more than 10 per cent for several years in a row and analysts say insurers are being forced to slow rate rises in a softening economy, in which there is also growing competition from recent entrants Coles and Woolworths.
After Mr Wilkins said IAG would aim to push through premium increases in the low double digits, UBS analyst James Coghill said IAG's commentary was the most conservative in a number of years, and the sector now faced a "much tougher growth phase".
It comes after IAG last week reported a tripling in profits to $776 million, while Suncorp's general insurance arm said earnings jumped 79 per cent to $883 million.
Frequently Asked Questions about this Article…
The article says that amid a weak economic environment customers — especially small and medium-size enterprises — are cutting costs by choosing products with lower premiums and accepting higher excesses. IAG chief executive Mike Wilkins described this as a conscious trade-off where taking a higher excess translates into lower ongoing premiums.
Yes. IAG has seen an increase among households (its largest market alongside Suncorp) choosing lower premiums, but the article notes the trend is much more pronounced in the commercial sector, particularly among SMEs.
The three big ASX-listed insurers — QBE, IAG and Suncorp — signalled softer rates of domestic growth from premiums for the year ahead. IAG said it would aim to push through premium increases in the low double digits, while analysts warned the sector faces a tougher growth phase.
Home cover rates rose by more than 10% for several years running, according to the article. Analysts say insurers are being forced to slow rate rises in a softening economy, so the pace of increases appears to be easing.
The article states that growing competition from recent entrants such as Coles and Woolworths is adding pressure on established insurers and contributing to the need to slow premium rate rises.
IAG reported a tripling in profits to $776 million, while Suncorp's general insurance arm said earnings jumped 79% to $883 million, as noted in the article.
Market analysts are debating whether the sector is reaching a peak in profitability after a surge in premiums. UBS analyst James Coghill described IAG's recent commentary as the most conservative in years and said the sector now faces a 'much tougher growth phase.'
As reported, taking a higher excess is a way customers are cutting premiums: by agreeing to pay more out of pocket if they make a claim, policyholders can typically secure lower ongoing premium payments. The article frames this as a conscious trade-off many SMEs and households are making to rein in expenses.
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