The Insurance Australia Group Ltd (ASX: IAG) share price is under the microscope, with global political developments potentially adding to the pressure.
IAG's shares closed on Friday trading at $7.68, riding high on strong financials. But could United States presidential nominee Donald Trump's comments on insurance costs in the US this week spell trouble for the Australian insurer?
IAG shares were down 1.1% over the past week after clipping a 35.6% gain this year to date.
Let's take a closer look at the situation and the IAG share price.
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Trump and the IAG share price – what?
It might seem a stretch at first. But the former US president's recent pledge to crack down on the rising cost of car insurance if re-elected has raised eyebrows globally.
Insurance costs have soared in the US and Australia due to similar factors, mainly inflation and the rising costs of repairs. This has impacted the IAG share price in 2024.
In the US, Trump's vow to reduce car insurance premiums has brought the issue to the spotlight.
The presidential nominee mentioned on platform X on Thursday that car insurance was "up 73%" and vowed to slash the number in half.
If similar sentiments catch on in Australia, it could spell trouble for insurers like IAG.
According to The Australian Financial Review, WAM Leaders said insurers "may be next" on politicians' radars. More so if the cost of living remained front and centre of the political debate.
National insurers are also facing a parliamentary inquiry regarding their response to major flood claims in 2022. A focus on premium hikes could bring further scrutiny to the IAG share price.
But despite the potential political headwinds, the insurer's latest financial results suggest the company is in solid shape.
For FY24, IAG posted a 79% surge in insurance profit, hitting $1.4 billion. This saw profits lift 8% and its insurance margin improve to 15.6%.
Critically, this was driven by double-digit premium increases in property and motor insurance.
In that regard, if cost-of-living issues dominate the next election – and insurers are targeted for premium increases – the company's ability to maintain these margins could be tested.
Should we be concerned about IAG shares?
While it's difficult to predict how Trump's comments will directly impact Australian insurers, his stance could be a sign of what's to come in local politics, especially as cost-of-living concerns intensify.
For now, brokers don't seem to be overly concerned.
According to CommSec, IAG stock is rated a moderate buy based on the consensus of analyst estimates. This rating includes five buys and six hold ratings, and no brokers recommend selling.
Foolish takeaway
The IAG share price has been performing well, buoyed by strong financials and dividend growth. However, political risks are currently dominating the headlines, and should insurance costs become a political talking point — as they are in the US right now — there's no saying the impact.
Insurance Australia Group shares are up 36% in the past year.
