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.
The post Could this help take pressure off IAG (ASX:IAG) shares in the future? appeared first on The Motley Fool Australia. –

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.

The post Could this help take pressure off IAG (ASX:IAG) shares in the future? appeared first on The Motley Fool Australia.

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More reading

Why this broker tips IAG (ASX:IAG) shares as a buy in 2022

Why is the IAG (ASX:IAG) share price having a rollercoaster start to the year?

Leading brokers name 3 ASX shares to sell today

What happened to the Insurance Australia (ASX:IAG) share price in 2021?

What’s happening with the IAG (ASX:IAG) share price today?

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.

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