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In the days following the destructive December 2007 storm, NRMA Insurance received more than 25,000 claims, equalling the number usually received from this area in six months.
Teams from across the business quickly mobilised to begin the mammoth repair and rebuilding effort. A catastrophe assessment centre was opened where more than 2,000 motor claims were assessed weekly— a ten fold increase for the region.
The home repair process was complicated by a shortage of tradespeople over the summer holiday period and prolonged, unseasonably wet weather. In almost half of the 60 days after the storm, rain either disrupted or prevented roof repairs.
The industry attracted criticism from media, government and residents who believed insurers were taking too long to fix customers’ homes.
NRMA Insurance stood out from competitors for its determination to battle through the wet weather and fulfil its insurance promises. In conjunction with suppliers, NRMA Insurance pioneered an ‘umbrella’ repair system which used a crane to hoist a marquee over damaged roofs while repairs were underway. A scaffold system to cover roofs was also used.
NRMA Insurance was the only insurer able to complete wet weather repairs and the extraordinary response of NRMA Insurance people during the event drew praise from the then NSW Emergency Services Minister Nathan Rees.
| Financial performance | 2008 | 2007 |
|---|---|---|
| Gross written premium | $2,941m | $2,889m |
| Net earned premium | $2,806m | $2,788m |
| Insurance profit | $312m | $451m |
| Insurance margin | 11.1% | 16.2% |
Our Australian direct insurance division, IAG’s largest business which contributes about 38% of the Group’s revenue, grew GWP by 1.8% during the year to around $2.9 billion.
We saw our strongest GWP increases in NSW, Queensland and Western Australia. Nationally, our short-tail portfolio (home and motor insurance) grew GWP by 3.9% and we maintained our NSW CTP market share at around 38% (as measured by car registrations).
Our insurance profit was $312 million compared with $451 million in the previous year. A major contributor to this decline was increased storm costs during the year, most notably the severe storms which struck western Sydney in December 2007.
We also experienced higher repair costs, lower releases from prior years’ claims reserves and the impact of widening credit spreads. These factors contributed to a decline in our insurance margin.
Premiums have increased across most personal insurance lines to reflect the increased claims costs.
Our customer satisfaction index score remained high at 84 and retention rates among our home and motor insurance customers continued to exceed 83%.
We are focused on tightly managing expenses and claims costs and ensuring risks are priced appropriately to position our business to improve returns. We will deliver a substantial portion of the Group’s $130 million annual savings (before tax), with initiatives tracking to schedule.
Above all, our aim is to better understand our customers’ needs and provide superior customer experiences.
| Financial performance | 2008 | 2007 |
|---|---|---|
| Gross written premium | $2,553m | $2,600m |
| Net earned premium | $2,363m | $2,338m |
| Insurance profit | $174m | $220m |
| Insurance margin | 7.4% | 9.4% |
CGU’s research shows four out of five Australian businesses are underinsured, on average by as much as 38%.
That’s why CGU has developed Right Cover, an innovative, simple and cost effective service designed to ensure small businesses get the right level of insurance.
As part of Right Cover, a loss adjuster will review a small business owner’s assets, trading profits and insurance requirements and produce a comprehensive report, including insurance recommendations.
When the business owner accepts and implements these recommendations, CGU will increase their insurance policy limit by a further 20% above the recommended levels, at no additional cost.
And while the price of the service, which has been developed to be affordable for small and medium enterprises, is only paid once, these benefits continue to apply to business insurance policies for an agreed period, as CGU will automatically index the sums insured by the consumer price index.
Having the right level of insurance can make all the difference when risk becomes reality.
Right Cover is just one of the ways CGU is developing innovative products and services to differentiate our business and provide superior customer experiences.
| Financial performance | 2008 | 2007 |
|---|---|---|
| Gross written premium | $2,553m | $2,600m |
| Net earned premium | $2,363m | $2,338m |
| Insurance profit | $174m | $220m |
| Insurance margin | 7.4% | 9.4% |
Our Australian intermediated insurance division, known as CGU, was restructured in April 2008 to integrate IAG’s former commercial insurance and business partnerships businesses. The division now includes all insurance sold through intermediaries, including brokers, authorised representatives, financial institutions and motor dealers, predominantly under the CGU and Swann Insurance brands.
CGU’s GWP declined by 1.8% compared to the previous year, reflecting our commitment to maintaining disciplined pricing. Targeted rate increases have resulted in a loss of some business, however, we believe we have a responsibility to continue to price insurance at sustainable levels rather than underpricing those risks.
Winning new business in this environment was very difficult, but CGU’s ongoing focus on customer relationships has supported retention rates, which remained steady at around 80%.
Profitability continued to be supported by prior years’ claims reserve releases, although at lower levels than last year. Our insurance margin reduced by 2.0% for the year, reflecting declining GWP, lower reserve releases and widening credit spreads.
However, the underlying performance is beginning to improve through a focus on profit rather than growth, strict control of expenses and productivity improvements. We also continued to introduce initiatives to differentiate CGU through innovative products and services, such as Right Cover (see case study).
GWP growth is expected to remain flat for the coming year as we focus on restoring profitability rather than pursuing unprofitable market share.
The underlying insurance margin is expected to improve as we realise the benefits of targeted rate increases and efficiency initiatives, which will help us deliver a portion of the Group’s $130 million annual savings (before tax).
