Our responsibility
Acting responsibly to
build
and maintain trust
Overview: We are operating in a complex environment where community expectations of business conduct and ethics are increasingly clear. Consumers have greater access than ever before to information about business behaviour and they, along with regulators and consumer advocates, are sending a clear signal about what is acceptable. Effectively addressing social and environmental issues to build and maintain trust in IAG is more important than ever and we accept that we have a responsibility to act. Actions this year included a continued focus on listening to customer views and considering ethics through our Consumer Advisory Board and Ethics Committee, formalising our Climate Action Plan, and setting science-based emissions targets for our operations.
Maintaining trust through ethical business practices
Government inquiries, regulator reviews and the Royal Commission have highlighted misalignment between community expectations and business practices. Assessing our business through the community expectations lens is crucial because it provides us with the opportunity to understand what is important and valuable to our customers.
We already have a number of mechanisms in place to help us do this. Our Consumer Advisory Board gives us insights from key consumer groups and our Ethics Committee provides ethical guidance on customer and partner engagement. Our Product Design Principles guide IAG’s employees when developing, selling, distributing or communicating about IAG products. The principles help us evaluate whether our products are meeting customer needs and offering them fair value. These support our well established underwriting, governance and regulatory compliance processes.
In past years, ASIC raised concerns about insurers selling add-on insurance through motor vehicle dealers. The industry has agreed to pay money back to customers who bought this insurance. IAG is paying $39.5 million to 64,187 Swann Insurance customers and we are working with ASIC to complete this program. So far, we have paid out more than half of this amount.
We know that these products did not deliver the value they should have for many customers. We did not get it right in this instance. IAG has since sold its Swann Insurance motor vehicle distribution rights and no longer sells add-on insurance through motor vehicle dealers. We will also be making a community benefit payment from unclaimed amounts and that payment has been approved by ASIC.
We understand the importance of meeting community expectations and believe the Royal Commission provides us with a valuable opportunity to listen, learn and make any necessary improvements to our business to help ensure we do the right thing by our customers.
Taking action on climate change
Reducing carbon emissions is increasingly urgent to avoid the effect of catastrophic climate change and potential longer term commercial impacts. IAG began implementing a three-year Climate Action Plan this financial year and publicly launched this in July 2018. We are committed to assessing and disclosing risks and opportunities that are aligned with the recommendations oof the Task Force on Climate-related Financial Disclosures (TCFD):
Governance: Accountability and oversight for IAG’s Climate Action Plan, including our approach to disclosure, sits with the Board and Group Leadership Team1.
Strategy: We consider climate change in our strategy setting process. Our strategy is resilient to short term climate change risks due to our use of risk-based pricing, reinsurance and the ability to annually adjust premiums. We recognise there are medium and longer term strategic considerations from increasing frequency and severity of natural peril events and associated increases in claim costs. We have commenced transitional and physical risk assessments using climate scenarios to inform improved business outcomes. We are also investigating further product and service opportunities that support adaptation and emission reductions, in addition to the existing fuel-efficient vehicle pricing benefit provided through our NRMA Insurance and NZI brands.
Risk management: IAG considers climate-related risks through our Enterprise Risk Profile, supported by our Risk Management Framework and Risk Management Strategy. In the 2018 financial year, we commenced an assessment of physical and transitional risks. We continue to work with leading climate researchers on the trends and impacts of extreme weather events. The first phase modelled different climate futures informing how much, and in what locations, extreme weather may affect claim events and ultimately home insurance cost. Our risk assessments, scenario analysis and disclosure will also be informed by our participation in a global pilot led by the UNEP FI Principles for Sustainable Insurance (PSI).
Metrics and targets: IAG has been climate neutral since 2012 and achieved our absolute carbon emissions reduction target of 10% ahead of our 2020 commitment. We recently set science-based targets for our scope 1 and 2 emissions for a 20% reduction by 2020 and a 95% reduction by 20502.
Expanded TCFD disclosure
We will provide expanded TCFD disclosure by the end of the 2019 financial year. This will be informed by our participation in the global PSI Pilot on TCFD, which commenced in August 2018. This disclosure will consider the most appropriate analysis of the physical and transitional risks faced by IAG in various global warming scenarios, and their financial implications for us.
1 Information on our corporate governance can be found on our website: https://www.iag.com.au/about-us/corporate-governance.
2 Details of our targets and emission footprints are also available on our website and in our 2018 data summary and glossary of terms.