IAG says premium pricing impacts from this summer’s bushfires are likely next financial year as the industry deals with repercussions from the catastrophe.

MD Peter Harmer says there will be some event-driven claims inflation, reinsurance costs are likely to rise and perils allowances will be influenced by this year’s events.

“It is still reasonably early in the context of how these losses are going to develop and our catastrophe insurance program doesn’t renew until the first of January,” he told insuranceNEWS.com.au.

“There will be some impact on premiums but it is just a little early to be definitive at this stage.”

Mr Harmer says industry modelling for bushfires is probably less advanced compared to cyclones, hailstorms and earthquakes, while a wider response involving governments and industry is needed to address risks highlighted by the unusual scope and intensity of this season’s catastrophe.

“We are very conscious of ensuring that insurance remains accessible and affordable for individuals and businesses,” he said. “Simply putting our prices up to reflect our changing understanding of the risk is not enough.

“It has got to be a multi-pronged attack, but as our input costs increase we will need to reflect that in our pricing.”

The company boosted its natural perils allowance to $850 million for this financial year due to storms this month, after raising it last month to $715 million after the hailstorms and bushfires. The allowance at the start of the year was $641 million.

Mr Harmer says increasing catastrophe costs are likely be reflected in next year’s allowance, but the company won’t “over-react to what seems like an unusually high period of perils”.

IAG half-year net profit fell 43% to $283 million, mainly due to the year-earlier sale of the Thailand business and a customer remediation program, while the reported insurance margin slipped to 13.5% from 13.7% a year ago due to the bushfires.

The full-year reported insurance margin forecast was cut to 12.5-14.5% from a revised January 24 forecast of 14.5-16.5%.

Gross written premium (GWP) during the first half rose 1.4% to $5.96 billion, with “like-for-like” growth underpinned by rate increases.

Morningstar analysts says IAG’s reinsurance and quota share arrangements have been “no match for the fires and heavy rains” this year, but it does not see the events as a new norm.

“Ultimately, we think it will be the policyholders who wear the increased claims costs through premiums increases if the severity and frequency continues,” a research report says.

But it says competitive pressures from large global insurers and small niche players will make it difficult to lift premiums faster than claims inflation in the longer term.