Could this help take pressure off IAG (ASX:IAG) shares in the future?

IAG’s boss has come out in support of a proposed disaster mitigation fund.

| More on:
a man blown off his feet sideways hangs on with one hand to a lamp post with an inside out umbrella in his other hand as he is lashed by wind and rain with a grey cloudy sky background.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • The IAG share price suffered through an influx of disatrous weather last year
  • Now, the insurer’s boss has come out in support of a plan put forward by the federal opposition
  • If implemented, it could see up to $400 million put towards preventing and repairing damage caused by natural disasters such as floods, cyclones, and bushfires

The Insurance Australia Group Ltd (ASX: IAG) share price suffered through disastrous weather in 2021, but a new mitigation fund put forward by the federal opposition could help reduce insurance providers’ costs.

The fund could see up to $400 million invested in disaster prevention and resilience annually.

As of Wednesday’s close, the IAG share price is $4.45.

Let’s take a look at what the federal opposition is promising Australians and what it could mean for insurers like IAG.

Could this take some pressure off IAG shares in the future?

The IAG share price was hit hard last year when the company announced it had been forced to increase its expected net natural perils claim costs for financial year 2022 by 36%.

Originally, the insurer had budgeted $765 million for natural perils this financial year. But, due to severe storm activity in October, that figure was upped to $1,045 million.

Additionally, as my Foolish colleague Zach recently reported, many brokers believe the perils activity is a material risk to the company’s future earnings.

However, the Australian Labor Party has pitched its Prevent, Prepare, Rebuild plan. If implemented, the plan will see funds going to prevent and protect Australians from severe weather events in the future.

IAG managing director and CEO Nick Hawkins hailed the plan as a way to “reduce the extensive cost of recovering from these disasters”. Hawkins commented:

Over many years we’ve highlighted the importance of greater investment in mitigation initiatives to help protect communities before disasters strike and we welcome Labor’s commitment to establish a fund dedicated to help achieve this.

Labor is pledging to put $200 million each year towards the fund. That may be matched by state and local governments.  

The money will be put towards measures such as flood levees, sea walls, cyclone shelters, evacuation centres, and fire breaks.

The opposition promises the measures will “simplify and speed up payments to disaster victims and repairs to damaged infrastructure”. It also promises to “assist with spiralling insurance premiums in disaster-prone regions, by reducing the risk of expensive damage to homes and businesses”.

By extension, that could also help reduce risks facing insurance providers such as IAG as well. Of course, there are many hoops and there is no timeline for the plan to be put into action.

Still, the company’s boss is seemingly excited by the prospect.

Things are looking up for the IAG share price lately. Although it has fallen 12% in the last year, it has gained 4.69% since the start of 2022.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns and has recommended Insurance Australia Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Financial Shares

Three colleagues stare at a computer screen with serious looks on their faces.
Dividend Investing

Here are 3 ASX financial shares going ex-dividend this week

Let's check out some funds going ex-div this week.

Read more »

A female financial services professional with a manicured black afro hairstyle turns an ipad screen to show a client across the table a set of ASX shares figures in graph format
Financial Shares

Broker names 2 ASX 200 financials shares to buy

These financials shares could be in the buy zone according to a broker...

Read more »

A man thinks very carefully about his money and investments.
Financial Shares

Macquarie share price slips amid move to fortify war chest by $400 million

Macquarie is raising funds. Here's how...

Read more »

A man and a woman sit in front of a laptop looking fascinated and captivated by ASX shares news articles especially one about the Bannerman Energy share price
Financial Shares

Down 10% in a month, here’s the latest for the AMP share price

AMP shares are taking a breather after tumbling 10% in a month.

Read more »

AMP share price demergerThree zigsaw pieces pulled apart to symbolise a demerger
Financial Shares

Suncorp share price lifts on demerger plans

Suncorp shares extend a relief rally today.

Read more »

A man in a business suit holds his coffee cup aloft as he throws his head back and laughs heartily.
Financial Shares

Latitude share price launches 19% in first major gain since scrapped Humm deal

The stock is rebounding on Friday.

Read more »

A man analyses stockmarket graph on his computer.
Financial Shares

Is the Challenger share price cheap after sliding 13% in a month?

Challenger shares have had a rough month. Time to buy?

Read more »

A woman sitting in her lounge room punches the air in a gesture of success, having seen the rising IAG share price on her laptop
Financial Shares

Why did the IAG share price surge 5% on Thursday?

The insurance stock has bounced back from a recent 10-year low.

Read more »