OPERATING PERFORMANCE
Australian
Business
Division
Business Division houses all commercial insurance products sold in Australia under the CGU, WFI, NRMA, RACV, SGIO and SGIC brands, as well as niche products sold through brands such as Swann Insurance.
RESULTS
The division reported gross written premium of $2,979 million, a contraction of 6.7% compared to last financial year. The result reflected a continuation of soft market conditions in which the business has maintained its underwriting disciplines. The premium outcome included:
- an 8.0% fall in workers’ compensation premium as weaker economic conditions in Western Australia affected payrolls;
- the transfer of large-corporate property renewal rights to Berkshire Hathaway, under the terms of the strategic relationship;
- a 27.0% decline in strata premium, as the division sought to maintain acceptable prices in the face of fierce competition from new entrants; and
- lower volumes in the fleet and commercial motor portfolios, including the transfer of former Wesfarmers heavy motor volumes to the specialist NTI joint venture 50% owned by IAG.
A number of portfolios, most notably liability, experienced moderate growth.
The division’s underlying margin was slightly lower at 9.7%, reflecting tough market conditions, with some offset from the benefit of additional Wesfarmers integration synergies which were realised as planned. Its higher reported margin of 10.0%, compared to 3.0% last financial year, included higher reserve releases and a much lower natural peril claim cost.
CLOSER TO CUSTOMERS
The Business Division continues to enhance its products, strengthen its partnerships and improve the quality of service it delivers. This year, initiatives included:
- ongoing improvements to digital capacity and products to make it easier for customers to do business with it;
- the launch of the Cyber Defence product to protect businesses against the damage from incidents such as privacy breach, system damage, extortion, computer virus, crime and hacking; and
- market-leading mobile and data customer relationship management solutions for customers and partners.
Additionally, CGU extended its support of Tropfest, the world’s largest short film festival, with a three-year sponsorship deal. This initiative is expected to help create new opportunities for Tropfest, and the many small Australian businesses that rely on it.
Business Division’s strong levels of service and partnership capabilities continued to receive industry recognition:
- in September 2015, CGU was voted 2015 Insurer of the Year in the annual National Insurance Brokers Association Insurer Survey by Brokers, winning seven of the 11 categories;
- in December 2015, the latest AIMS survey results reaffirmed the division’s strong position amongst brokers with most products performing well in terms of overall satisfaction;
- in May 2016, CGU was named Domestic Insurer of the Year by the Council of Queensland Insurance Brokers, winning the award for the fourth consecutive year; and
- in June 2016, CGU was voted Insurer of the Year by Insurance Business magazine for the second year in a row, winning the most votes across 11 award categories.
OUTLOOK
While a difficult environment continues, there is growing evidence of a bottoming in cyclical conditions in the Australian commercial market.
Competition in the intermediated market continues to be strong, whereas the direct market, which is 23% of the Business Division, is expected to remain stable. Participants also face the challenge of growing change in customer behaviour, including choice of distribution channel, how they engage with insurers and increasing demands for flexible service propositions.
A further contraction in gross written premium is anticipated in the 2017 financial year, as the division maintains its focus on sustainable profitability, while pursuing rational pricing of its core business with targeted commercial offerings. As part of the targeted portfolio review process, IAG sold the distribution rights to Swann Insurance’s motor dealers, finance brokers and fleet network, with effect from August. The Swann Insurance business will continue to focus on its core motorcycling offer.
