By Rishav Chatterjee and Rajasik Mukherjee

(Reuters) - Australian insurance companies fell sharply on Monday after opposition leader Peter Dutton threatened to break them up, accusing them of exploiting customers, as the country prepares for federal elections due by May.

In an interview with Sky News, Dutton, leader of the Liberal Party, said that if elected in the federal election, his government would scrutinise insurance industry practices.

"In the insurance market, we will intervene to make sure that consumers get a fair go because at the moment people are paying too much for their insurance and what's resulting is that people aren't taking out insurance," Dutton said in the broadcast on Sunday.

The Australian insurance market is dominated by major players Suncorp Group, Insurance Australia Group (IAG) and QBE Insurance. Suncorp shares slumped 21.3% and IAG fell 4.1%, while QBE dropped as much as 1%.

Suncorp shares slid to their lowest since May 30, 2024 and dropped the most since June 2020, while IAG's stock hit a more than three-month low.

Australia's opposition Liberal-National Coalition is leading the incumbent Labor, according to new opinion polls while a federal election looms large within three months, the latest indication of growing discontent with Prime Minister Anthony Albanese's government.

Last week, IAG reported first-half earnings with its top-line growth and dividend missing estimates while Suncorp was trading ex-dividend on Monday.

"Peter Dutton's comments probably didn't do sentiment for insurance companies any favours either," said Tim Waterer, market analyst at KCM Trade.

"While at this stage it remains just an idea which has been floated, the comments did demonstrate that insurers and their practices have caught the attention of the opposition leader and therefore could come under closer policy scrutiny down the track."

Insurance premiums have spiked over the past year, with Australian Bureau of Statistics data revealing a 16.4% increase, marking the largest rise in about thirty years.

Higher mortgage repayments amid a cost of living crisis have stretched household budgets.

"Insurance customers need to demand a better deal from state governments," said Andrew Hall, CEO of Insurance Council of Australia.

"State and territory governments collect more tax on insurance products than insurance companies make in profit. The abolition of state insurance taxes would reduce premiums by 10 to 30%, providing immediate cost of living relief."

(Reporting by Rishav Chatterjee and Rajasik Mukherjee in Bengaluru; Editing by Jacqueline Wong)

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