The Middle East conflict’s impact on the industry supply chain is “already evident” as disruptions drive up costs, according to the Insurance Council of Australia.

Prices for building materials and freight have increased up to 36% and 50% respectively for insurers, while trades and on-site specialist prices are up as much as 30%, it says.

“These aren’t projections,” ICA wrote on LinkedIn today. “They’re current cost pressures hitting supply chains, slowing repairs, and adding to the financial strain Australian households and businesses are already feeling.

“The flow-on effects of the Middle East conflict [are] already evident, with higher fuel costs, supply pressures and material costs.”

ICA says its board strategy committee is acting to address the cost impacts following a meeting this week.

It will work with members to support consumers seeking hardship assistance; lead cross-sector engagement with government and industry stakeholders to anticipate supply chain disruptions and develop mitigation strategies; and co-ordinate communications to small businesses.

“In the same way ICA works when a natural catastrophe occurs, the board has tasked the industry’s most senior executives to monitor impacts and, as appropriate, co-ordinate the industry’s response,” ICA CEO Andrew Hall said.

KPMG partner Scott Guse says ICA is signalling it is “going to be tougher for insurers into the future in terms of increasing claims cost and potentially delays in settling claims, with supply issues and logistical challenges.

“When you have rising cost and supply chain issues, such as we are starting to experience, it can take a very, very long time for prices to come down. They go up straight away, but it takes a long time to come down and sometimes they never come back to the original level.

“You are left with artificially high ... prices, which would not have happened otherwise.”

Supply chain disruptions will “absolutely” have knock-on effects for insurers, as the covid pandemic showed, Mr Guse told insuranceNEWS.com.au. However, the Middle East conflict is different, because insurers initially benefited from the pandemic lockdowns due to sharply reduced claims activity.

“In this situation, you’ve got no reduction in claims numbers … The extent of the impact is unknown,” he said. “It’s a valid warning that the industry is putting out there that customers could suffer because of delays and insurers will suffer due to cost inflation and there’s no offset such as reduced claim numbers that there was during covid.”

S&P Global Ratings recently warned the war could affect underwriting earnings.

“Growth could dampen, cost of claims could increase and, while prices may rise or premiums may rise to cover, that may be slower or not completely cover or offset the claims cost,” S&P analyst Michael Vine told insuranceNEWS.com.au.

He says ICA’s announcement today shows the industry is “working together to look to resolve or ease any supply chain impact”.