Suncorp says higher house premiums needed

The cost of living in Australia is pretty high but Suncorp (ASX: SUN) Chief Executive Patrick Snowball has said insurance premiums need to rise.

Yesterday, after announcing a 32% drop in profit for the Suncorp group Mr Snowball has signalled “high single-digit” increases in home insurance in coming years. However, despite dropping the group’s overall profit, the general insurance division, which includes names like GIO and AAMI, surged profits 79% higher.

Mr Snowball highlighted the cost of reinsurance as a serious problem and said Australia’s big houses are in high risk areas. “Australia has the biggest houses in the world, and they are located in some of the highest-risk areas of the world”, Mr Snowball said.

He also identified the issue of underinsurance as being a factor in promoting higher premiums. “Increasingly, we are seeing a high level of under-insurance both on the premises themselves and more importantly the contents, and this is something we need to reflect in the premiums we charge”.

Suncorp and rival Insurance Australia Group (ASX: IAG) (which operates under names like SGIO, SGIC, CGU, Swann and NRMA) control much of the domestic general insurance market and will welcome higher premiums. Today IAG reported a profit of $776 million, up from $207 million a year earlier and said the outlook remained positive.

Foolish takeaway

Investors will welcome higher premiums, particularly as the companies embark on cost cutting initiatives. The increased prices are a reflection of many towns becoming more and more expensive to insure but a rise in the number of homeowners underinsuring or lapsing premiums could drag on profits. Both IAG and Suncorp are worthy of a spot on watchlists.

If you’re interested in our #1 dividend-paying stock, discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

More reading

Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.

Top 3 ASX Blue Chips To Buy For 2019

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked…

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of The Motley Fool’s Top 3 Blue Chip Stocks for 2019.

Each one pays a fully franked dividend. The names of these Top 3 ASX Blue Chips are included in a specially prepared FREE report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

See the 3 blue chip stocks

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.