IAG says it is working to address the claims cost pressures that affected its insurance margin last financial year.

The insurer grew net profit by 48.6% to $929 million in the year to June 30, but its underlying insurance margin was reduced to 11.9% from 14%.

Higher claims costs in short-tail motor, adverse effects from higher perils allowance and significantly higher commercial large-loss experience in Australia were to blame.

“We have a number of initiatives under way that look at how we can reduce the cost of managing claims in a way that creates affordable insurance options for customers, both now and into the future,” CEO and MD Peter Harmer said.

“We expect these initiatives, which are being created in consultation with our customers, to be finalised in the first half of the [current] financial year.”

Rate rises in short-tail lines, especially motor, are expected to counter claims inflation.

“We recently announced the creation of a single Australian division … which is an important step in our overall simplification program,” Mr Harmer said.

 “It centralises accountability for customer, product, distribution and operations for all of our Australian brands, which will speed up decision-making as we respond to the ever-changing needs and expectations of our customers.”

IAG’s gross written premium (GWP) improved 3.9% to $11.81 billion and insurance profit grew 6.8% to $1.26 billion. The combined operating ratio strengthened to 88% from 91.3%.

The consumer division in Australia increased GWP by 5.5% to $6.12 billion, aided partly by rate rises in short-tail motor.

The commercial division’s GWP fell 0.6% to $2.96 billion, due in part to large losses in the property line during the second half and the exit from the Swann Insurance car dealership business.

The New Zealand arm generated GWP of $2.34 billion, up 7.2%, and in Asia GWP declined 5.2% to $366 million amid tougher competition.

CFO Nick Hawkins says the commercial business in Australia is “seeing rate increases flowing through pretty consistently”, and in New Zealand the market post-Kaikoura quake is “more favourable than 12 months ago”.