It was big of Reserve Bank governor Michele Bullock yesterday to admit that, well, maybe there was some profiteering-driven inflation in the economy — though, typically, she used that as a justification not for reconsidering whether punishing households over and over again with rate rises was the right way to address it, but for continuing to smash demand to get inflation down.
That is, greedy corporations get their profits, but the rest of us get to keep paying the price.
As if on cue, QBE and Insurance Australia Group, two of Australia’s biggest insurers, have just revealed big lifts in dividends, premiums and profits.
In the December quarter consumer price index report, the Australian Bureau of Statistics pointed to the major role rising insurance costs were playing in the rate of inflation, saying, “Insurance prices rose 16.2% in the 12 months to the December 2023 quarter, which is the strongest annual rise since March 2001. Higher reinsurance, natural disaster and claims costs contributed to higher premiums for house, home contents and motor vehicle insurance.” Among others, that’s QBE and IAG.
These higher premiums have been necessary for the companies to allow them to rebuild their reserves in the wake of repeated years of natural disasters. And it’s not just higher premiums that have pushed up profits but also investment income. QBE’s net profit rose to US$1.355 billion, compared with US$587 million in FY22. So QBE lifted its dividend rose from 39 to 62 Australian cents — an inflation-busting rise of 59%!
IAG’s year-on-year figures are complicated by a one-off release last year of $360 million in reserves. But it saw its earnings improve nicely as well: insurance profit (its core operation) rose to $614 million in the December half year. IAG boasted of a $264 million increase in the pre-tax insurance profit, driven by a 9.3% rise in net earned premiums and improved reported margin, as well as significantly higher investment income on shareholders’ funds of $147 million.
But it’s premiums that matter to consumers. IAG’s gross written premiums (that’s the most basic measure for an insurer’s performance) rose 12.5%, three times the rate of inflation. QBE saw a 10% rise in gross written premiums over all of 2023, again much stronger than the 4.1% CPI rate. IAG’s will reward shareholders with a 75% lift in interim dividend to 10 cents a share from 6 cents in the December 2022 half-year, and a $200 million share buyback “as a result of our strong capital position.” (That position is from customers paying more for insurance and a drop in risk and payouts as La Niña became a so-far mild El Niño, not from brilliant management.)
Between having such a strong capital position that it is buying back shares, and a strong investment income, the rationale for IAG’s huge premiums increases suddenly looks a lot more like profiteering than prudent rebuilding.
Don’t forget what happened to IAG last year: it was penalised $40 million by the Federal Court following action by the Australian Securities and Investments Commission “for failing to honour discount promises made to customers who held NRMA branded insurance policies. This penalty is the largest ever penalty imposed by the Court against an insurer for breaches of the financial services consumer protection laws.” The company “made false or misleading representations to over 600,000 customers between March 2014 and September 2019”.
Thank goodness Bullock is standing by to whack us for profiteering as much as she would have been if it was ordinary inflation caused by greedy workers.
Disclosure: Bernard Keane holds Insurance Australia Group shares.
