australia direct to maintain strong market position and profitability … · 2014-04-14 · shares...

NEWS RELEASE 15 APRIL 2014

AUSTRALIA DIRECT TO MAINTAIN STRONG MARKET POSITION AND PROFITABILITY

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Insurance Australia Group Limited (IAG) today provided an update on its Australia Direct business, outlining the division’s strategy to maintain its strong market position and underlying profitability in the Australian direct personal lines market. At the briefing in Sydney, IAG Managing Director and Chief Executive Officer, Mr Mike Wilkins, emphasised the high-performing nature of Australia Direct and its significance to the Group. In the recently reported results for the six months to 31 December 2013, Australia Direct represented 48% of the Group’s gross written premium (GWP) and 54% of insurance profit for the period. Australia Direct generates over $4.5 billion GWP per annum and operates through a multi-channel model, with its range of iconic brands servicing around 3.5 million customers. Significant market shares are held in the motor and home segments, as well as compulsory third party (CTP) insurance in New South Wales. “Our strategy is to deliver a superior customer experience, coupled with low operating costs,” said Mr Andy Cornish, Chief Executive Officer of Australia Direct. “We have market-leading capabilities in customer insights, digital offerings and risk assessment and selection. We are also leveraging our scale to realise supply chain improvements, both in terms of customer service and cost. We are confident this strategy will sustain our strong market position and performance,” he said. The Group has reaffirmed its guidance for the financial year ending 30 June 2014 (FY14), comprising GWP growth of 3-5% and a reported margin in the range of 14.5-16.5%¹. Within this, the Australia Direct business is expected to report relatively flat GWP and an improvement in its underlying margin, compared to FY13. ¹ Reported insurance margin guidance for FY14 includes the following assumptions: – Net natural peril claim costs of $640 million, in line with allowance; – Reserve releases of around 3% of net earned premium; and – No material movement in foreign exchange rates or investment markets in 2H14.

About Insurance Australia Group Insurance Australia Group Limited (IAG) is the parent company of a general insurance group with controlled operations in Australia, New Zealand, Thailand and Vietnam, employing around 13,500 people. Its current businesses underwrite approaching $10 billion of premium per annum, selling insurance under many leading brands including NRMA Insurance, CGU, SGIO, SGIC and Swann (Australia); NZI, State and AMI (New Zealand); Safety and NZI (Thailand); and AAA Assurance (Vietnam). IAG also has interests in general insurance joint ventures in Malaysia, India and China. For further information please visit www.iag.com.au. Investor Relations Simon Phibbs T +61 (0)2 9292 8796 M +61 (0)411 011 899 E [email protected]

MediaPaul Marriage T +61 (0)2 9292 9557 M +61 (0)401 751 860 E [email protected]

Insurance Australia Group LimitedABN 60 090 739 923 388 George Street Sydney NSW 2000 Australia T +61 (0)2 9292 9222 www.iag.com.au

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15 April 2014 ABN 60 090 739 923

IAG IN FOCUSAUSTRALIA DIRECT

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This presentation contains general information in summary form which is current as at 15 April 2014. It presents financial information on both a statutory basis (prepared in accordance with Australian accounting standards which comply with International Financial Reporting Standards (IFRS)) and non-IFRS basis. This presentation is not a recommendation or advice in relation to Insurance Australia Group Limited (IAG) or any product or service offered by IAG’s subsidiaries. It is not intended to be relied upon as advice to investors or potential investors, and does not contain all information relevant or necessary for an investment decision. It should be read in conjunction with IAG’s other periodic and continuous disclosure announcements filed with the Australian Securities Exchange which are also available at www.iag.com.au.

No representation or warranty, express or implied, is made as to the accuracy, adequacy or reliability of any statements, estimates or opinions or other information contained in this presentation. To the maximum extent permitted by law, IAG, its subsidiaries and their respective directors, officers, employees and agents disclaim all liability and responsibility for any direct or indirect loss or damage which may be suffered by any recipient through use of or reliance on anything contained in or omitted from this presentation. No recommendation is made as to how investors should make an investment decision. Investors must rely on their own examination of IAG, including the merits and risks involved. Investors should consult with their own professional advisors in connection with any acquisition of securities.

The information in this presentation is for general information only. To the extent that certain statements contained in this presentation may constitute “forward-looking statements” or statements about “future matters”, the information reflects IAG’s intent, belief or expectations at the date of this presentation. IAG gives no undertaking to update this information over time (subject to legal or regulatory requirements). Any forward-looking statements, including projections, guidance on future revenues, earnings and estimates, are provided as a general guide only and should not be relied upon as an indication or guarantee of future performance. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause IAG’s actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Any forward-looking statements, opinions and estimates in this presentation are based on assumptions and contingencies which are subject to change without notice, as are statements about market and industry trends, which are based on interpretations of current market conditions. Neither IAG, nor any other person, gives any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward-looking statements in this presentation will actually occur. In addition, please note that past performance is no guarantee or indication of future performance.

This presentation does not constitute an offer to issue or sell securities or other financial products in any jurisdiction. The distribution of this presentation outside Australia may be restricted by law. Any recipient of this presentation outside Australia must seek advice on and observe any such restrictions. This presentation may not be reproduced or published, in whole or in part, for any purpose without the prior written permission of IAG.

All references starting with “1H” refer to the six months ended 31 December, being the first half of IAG’s financial year. For example, “1H14” refers to the six months ended 31 December 2013. All references starting with “2H” refer to the six months ended 30 June, being the second half of IAG’s financial year. For example, “2H14” refers to the six months ended 30 June 2014. All references starting with “FY” refer to the financial year ended 30 June. For example, “FY14” refers to the year ended 30 June 2014.

IMPORTANT INFORMATION

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AGENDA

WELCOME AND IAG OVERVIEW Mike Wilkins

AUSTRALIA DIRECT Andy Cornish

CUSTOMER INSIGHTS & DIGITAL Alison Ledger

PRICING Tracy Green

SUPPLY CHAIN & CLAIMS Anthony Justice

SUMMARY AND Q&A Andy Cornish

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IAG OVERVIEW

Mike WilkinsManaging Director and Chief Executive Officer

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IAG STRATEGIC PRIORITIESA CLEAR FOCUS ON AUSTRALIA, NEW ZEALAND AND ASIA

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AUSTRALIA DIRECTA SUBSTANTIAL AND HIGH-PERFORMING BUSINESS

% OF GROUP GWP* % OF GROUP INSURANCE PROFIT*

48% 54%

*Based on 1H14 results

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AUSTRALIA DIRECT OVERVIEWA SUSTAINABLE BUSINESS IN A STRONG MARKET POSITION

Andy CornishChief Executive Officer, Australia Direct

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^

AUSTRALIA DIRECTA LEADING NATIONAL PRESENCE WITH ICONIC BRANDS

^ RACV is via a distribution relationship and underwriting joint venture with RACV

~3.5 million customers

Multi-channel model

− >200 branches and agencies

− 7 call centres across the country (~7.2 million phone calls per annum)

− Internet and mobile device offering

~500,000 short-tail claims finalised per annum

~5,000 employees

Single pricing and claims platforms

A partnered motor and home repairer network

KEY OPERATIONAL STATISTICS

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67%

19%

7%5%

2%

NSW/ACT

Victoria

Queensland

WA

SA/Tas/NT

DIVERSIFIED PRODUCT AND GEOGRAPHICAL MIXANNUAL GWP IN EXCESS OF $4.5 BILLION

GWP BY CLASS* GWP BY STATE*

44%

32%

19%

5%

Motor

Home

CTP

Other

*Based on 1H14 results

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3,381 3,653 3,891 4,299 4,584 2,279

12.0%

16.9%19.5%

14.3%

19.7% 20.1%

12.1% 15.9%14.9%

15.2%

13.5%15.1%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

FY09 FY10 FY11 FY12 FY13 1H14

Gross Written Premium Reported Margin Underlying Margin

EXTENDED RECORD OF SUPERIOR PERFORMANCEMAINTAINING STRONG PROFITABILITY AND MARKET POSITION

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GWP AND MARGINS: FY09-1H14

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15.5% 13.5% 12.9% 12.5% 11.8% 11.2%

2.2%

2.1% 2.1% 2.1% 2.2% 2.3%

4.1%

4.2% 4.4% 5.1% 5.2%4.7%

21.8%

19.8% 19.4% 19.7% 19.2%18.2%

FY09 FY10 FY11 FY12 FY13 1H14

Administration Ratio Commission Ratio Levies

Disciplined focus on cost effectiveness in a streamlined operating model

Realised savings reinvested to enhance ability to deliver customer focused strategy

Dedicated focus on ensuring the claims function operates quickly, efficiently and at a high level of quality

SCALE AND EFFICIENCYRELENTLESS DRIVE ON COSTS

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EXPENSE RATIOS: FY09-1H14

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Multi-channel

Assessment and management of risk Scale and efficiency

Build and sustain winning partnerships

AUSTRALIA DIRECT’S STRATEGYFOCUS ON CUSTOMER EXPERIENCE AND COST EFFECTIVENESS

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CUSTOMER

AUSTRALIA’S FAVOURITE LOCAL INSURER

Our colleagues consistently deliver

great customer service

CONSISTENT ACCESSIBLE

INFORMED

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CUSTOMER INSIGHTSDRIVING VALUE THROUGH DEEP CUSTOMER UNDERSTANDING

Alison LedgerExecutive General Manager Product, Pricing and eBusiness

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Multi-channel




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CUSTOMER





INFORMED

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BUILDING DEEP CUSTOMER UNDERSTANDINGUSING HUMAN CENTRED DESIGN TO BUILD EMPATHY

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DESIRABILITY

FEASIBILITYVIABILITY

DIFFERENTIATION

Human Centred Design (HCD) is an innovation process with three iterative phases:

Insight

Co-creation

Action

HCD enables us to:

Develop deep customer knowledge and understanding

Empathise with customers

Design products and services around customers’ unmet needs

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DESIGNING EXPERIENCES TO MEET CUSTOMER EXPECTATIONSDELIVERING VALUE WITH A SUPERIOR EXPERIENCE

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DIFFERENTIATED, VALUE-DRIVING EXPERIENCES THAT BOTH CUSTOMERS AND COLLEAGUES ENJOY

ACTIVE ASSISTANCE

CLEAR EXPECTATIONS

FUTURE FUNDAMENTALS

RECOGNISING VALUE

Using our expertise to help customers make wiser decisions about risk and insurance

Ensuring customers are not disappointed by giving them confidence through transparency

Taking the pain out of the claims experiences, in a way that is personal, quick and valuable

Expressing gratitude to higher value customers

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A LOYALTY DISCOUNT THAT’S EASY TO UNDERSTAND

QUICKLY DEPLOYING CUSTOMER INSIGHTS TO MARKET BETTER RECOGNITION OF LOYALTY AND VALUE

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25+ 12.5% 15% 17.5% 20% 22.5% 25%

10-24 10% 12.5% 15% 17.5% 20% 22.5%

5-9 7.5% 10% 12.5% 15% 17.5% 20%

3-4 5% 7.5% 10% 12.5% 15% 17.5%

0-2 0 5% 7.5% 10% 12.5% 15%

1 2 3-4 5-7 8-9 10+

POLICY COUNT

YEAR

S O

F R

ELAT

ION

SHIP

Locked in

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EVOLVING CUSTOMER ADVOCACY PROGRAMEMBEDDING NET PROMOTER SCORE AS AN OPERATIONAL DISCIPLINE

HOW LIKELY WOULD YOU BE TO RECOMMEND OUR INSURANCE TO FAMILY, FRIENDS OR COLLEAGUES?

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FOCUSED ON DRIVING CUSTOMER ADVOCACYPOSITIVE TREND AND VALUE ESTABLISHED

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40%24%

33%

37%

28%39%

Feb '13 Mar '14

Promoters

Passives

Detractors

PROMOTERS, PASSIVES AND DETRACTORS Promoters are more valuable because they:

Hold more policies with us

Spend more money with us

Stay with us longer

Are worth 2.8 times more

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DIGITAL OFFERINGPROVIDING MARKET LEADING SOLUTIONS

Alison LedgerExecutive General Manager Product, Pricing and eBusiness

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Multi-channel




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CUSTOMER





INFORMED

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TECHNOLOGY DEVELOPMENTRAPID CHANGE TO CONTINUE

WHAT WILL THIS SCENE LOOK LIKE IN 2021?

Source: NBC Today show

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St Peter’s Square, Papal announcement

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The NRMA lnsurance brand leads the insurance sector (both general and life) in terms of website traffic, with 1.3 million visitors in February 2014

Traffic grew 70% February YOY and has more than doubled over the past two years

NRMA’s share of insurance sector traffic improved from 6.35% to 9.37% over the past 12 months

The second highest share of insurance sector traffic by a general insurer in February 2014 was 5.09%

17% of NRMA’s traffic in February 2014 was to mobile sites

ONLINE WEBSITE TRAFFIC GROWTH A SIGNIFICANT SHIFT IN CUSTOMER PREFERENCE

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Source: Experian Hitwise - Monthly Market Share in Business and Finance - Insurance (including all general and life insurance)

SHARE OF TOTAL INSURANCE SECTOR WEBSITE TRAFFIC - TOP 6 GENERAL INSURERS

NRMA

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DIGITAL OFFERINGPROVIDING CHOICE AND LEADING IN MOBILE

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DESKTOP & TABLET IPHONE ANDROID

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SELF-SERVICE CENTREEMPOWERING CUSTOMERS TO ‘DO-IT-YOURSELF’

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FULLY RESPONSIVE ACROSS ALL DEVICESINTEGRATED MULTI-CHANNEL PLATFORM

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PRICINGLEADING RISK ASSESSMENT AND SELECTION CAPABILITY

Tracy GreenHead of Commercial Pricing & Underwriting

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Multi-channel




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CUSTOMER





INFORMED

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INTERNATIONAL PRICING CAPABILITY BENCHMARKA GLOBAL LEADER IN UNDERSTANDING RISK

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Technical pricing capabilities

1 2 3 4 5

• C. Cost trending and loadings

• B. Modelling capabilities and techniques

• D. Technical price quality

• A. Data quality and extent

1 2 3 4 5

2013 International best practice2009

MotorPricing Capability Assessment Home

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PRICING GRANULARITY CAPABILITIESLEVERAGING DATA TO OUR ADVANTAGE

ANOTHER INSURER’S RISK

(with limited or no geocoding

capability)AUSTRALIA DIRECT’S RISK (based on geocodingthat incorporates topography)

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1:1 PRICINGDEEP AND GRANULAR UNDERSTANDING OF TECHNICAL RISK

bushland

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park

bushland

LOCATION BASED RISK

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GLOBAL LEADERS IN GEOSPATIAL DATAPROTECTING CUSTOMERS AND IDENTIFYING PROFITABLE RISKS

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Australia Direct’s geocoding capability is world class

It enables rapid response to customer insights to meet changing needs – e.g. identifying where a house is located on a property produces a more accurate view of flood risk

Australia Direct leverages external data and invests in in-house development to improve the quality of the information

Combined with our wealth of internal information, this places us at the forefront of risk assessment and selection

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SUPPLY CHAINLEVERAGING SCALE TO IMPROVE QUALITY, COST AND CUSTOMER EXPERIENCE

Anthony JusticeActing Chief Operating Officer

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Multi-channel



CUSTOMER





INFORMED

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NATIONAL SUPPLY CHAINA UNIQUE PROPOSITION IN THE AUSTRALIAN INSURANCE SECTOR

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PARTNERSHIP

Mutual dependency Self-selected Benchmarking opportunity

CUSTOMER

Quality Choice Speedy repairs

COMMERCIAL

Reduced cost Improved brand reputation Fewer rectifications

DRIVING SIGNIFICANT IMPROVEMENTS IN COST, QUALITY AND CUSTOMER EXPERIENCE

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PARTNERSHIP: TRANSFORMATION OVER THE LAST 5 YEARSOPTIMISING THE NUMBER OF QUALITY PARTNERS

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Longer term contracts – 5 years enables investment in supplier businesses

Enforceable performance metrics around customer, quality and cost

Guaranteed work volumes for some exclusive smash repairers

Rapid repair model improving customer experience

Choice of repairer

CREATING STRATEGIC PARTNERSHIPS WITH A SMALLER NUMBER OF SUPPLIERS

2009SUB-SCALE, FRAGMENTED

AND INEFFICIENT

2014LEAN, ALIGNED AND

CUSTOMER FOCUSED

Metropolitan areas only

Smash repairers Builders Contents suppliers

2009 500 110 200

2014 150 49 36

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QUALITY At least 10% of vehicles repaired are subject to a Quality Inspection

Use of genuine parts

Public reporting on quality, safety and fraudulent repairs, as well as annual audits of smash repair premises and equipment

CHOICE 75% of our customers choose repairers from our network

Customers can choose their repairer, including via online lodgement

SPEEDY REPAIR Single step process from lodgement to repairer

Repair cycle times reduced by an average of two days

Rapid repair operations with sub four-day turnaround

CUSTOMER: MOTOR REPAIR QUALITY FRAMEWORKPROTECTING CUSTOMERS, DRIVING BETTER REPAIR OUTCOMES

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COMMERCIAL: MOTOR SUPPLY CHAIN EFFICIENCIESREDUCED REPAIR COSTS, IMPROVED CUSTOMER SERVICE

Reduced complexity and cost of supplier management

Deeper understanding of supplier business and ability to share in increased value

Reduction in towing, hire car and other related supplier management costs

Overall annualised motor supply chain efficiencies of c.$60m to date

On target to deliver overall motor supply chain efficiencies of $100m per annum

AVERAGE MOTOR REPAIR COSTS

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SAROLLOUT

NSW & ACTROLLOUT

VICTORIAROLLOUT

Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13 Nov-13

CPI Adj avg Repair Cost: National CPI FY Avg Avg Cost Adj CPI (Without SAND)

WAROLLOUT

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CREATING CUSTOMER AND REPAIRER ADVOCACY

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CLAIMS MANAGEMENTTRANSFORMING OUR OPERATIONS TO LEAD IN CUSTOMER EXPERIENCE

Anthony JusticeActing Chief Operating Officer

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NATIONAL CLAIMS OPERATING MODELEVOLVING TO MAINTAIN MARKET-LEADING CUSTOMER SERVICE

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MARKET-LEADINGCLAIMS

MANAGEMENT

CUSTOMER-CENTRIC PROCESSES

Streamlined and consistent national processes Improved cycle times for claims Consolidated claims management

OUR PEOPLE

‘One team’ Engaged Optimised workforce and enhanced

productivity

LEADING TECHNOLOGY

End-to-end claims lifecycle management Increased business agility and improved

operational management

NATIONAL OPERATING MODEL

Cus

tom

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Man

agem

ent

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laim

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Tech

nica

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laim

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Nat

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A STRATEGIC DIFFERENTIATOR IN CLAIMS EXPERIENCEDRIVING VALUE AND EXCEEDING CUSTOMER EXPECTATIONS

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END-TO-ENDMANAGEMENT

MULTI-CHANNELCAPABILITY

IMPROVED COMMUNICATION

IMPROVED RESPONSIVENESS

A CLAIMS MANAGEMENT EXPERIENCE THAT IS SIMPLE, FAST, CONVENIENT AND CARING

DIGITAL CLAIMS CAPABILITY

IMPROVED EFFICIENCY

End-to-end claims management – lodgement, assessment, management and settlement Reduced cycle time

Ability for the customer to lodge via their preferred channel Online visibility of lodgement, repairer allocation and status update

Exceptional responsiveness to help customers during major events Streamlined and consistent national claims assessment capability

Increasing level of first call resolution

Reduced handovers, transfers and duplication Ability to communicate via the customer’s preferred medium

~15% claims lodgement online since go-live in March 2014

Leveraging scale Over $10m operational efficiency improvements in FY14F

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Exceptional responsiveness to customers during major events

− First on the scene

− Mobilise local expertise

− Customer certainty

Scale and capability allow us to respond to multiple events without compromising service

Streamlined and consistent national claims assessment capability

MAJOR EVENT RESPONSEA CLEAR SERVICE DIFFERENTIATOR

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USING TECHNOLOGY TO INCREASE SPEED AND QUALITYWE LEAD THE MARKET IN DIGITAL CLAIMS CAPABILITIES

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AUSTRALIA DIRECT A SUSTAINABLE BUSINESS IN A STRONG MARKET POSITION

Andy CornishChief Executive Officer, Australia Direct

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Multi-channel



CUSTOMER





INFORMED

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AUSTRALIA DIRECT – FY14 OUTLOOKFLAT GWP, IMPROVED UNDERLYING MARGIN

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FY14 OUTLOOK

REPORTEDGWP

UNDERLYINGGWP

UNDERLYINGMARGIN INFLUENCES

Motor ↔ ↔ ↑Home ↔ ↑ ↑ Cessation of Victorian FSL

CTP ↓ ↑ ↑ Competitive changes (Queensland / ACT)

Australia Direct ↔ ↑ ↑

FY14 OUTLOOK

Australia Direct Relatively flat GWP, higher underlying margin compared to FY13

Group Guidance reaffirmed: GWP growth of 3-5%, reported margin in range of 14.5-16.5% F

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QUESTIONS

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australia direct to maintain strong market position and profitability … · 2014-04-14 · shares...

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