Changing demographicsClimate changeTrust and credibilitySustainable growthIn summaryRISKS AND OPPORTUNITIES
By the very nature of our industry, we think a lot about risk. We assess it. We predict it. We price it. And of course we manage it. But we see a bigger role for IAG. If we can reduce the risk that negatively impacts on our customers and our communities, we can also reduce the risk to our business. We feel so strongly about this that we have enshrined it in our purpose.
Engaging with the community to proactively reduce risk is a simple notion. Yet it challenges the long-held view that the role of an insurance company is simply to pay claims once an accident has occurred. The case studies contained in this report showcase many of the ways in which we can use our expertise to benefit the broader community. By sharing what we know about risk and doing what we can to reduce it, we can make our communities safer places.
By making our roads safer, our workplaces safer, our homes safer, our communities safer, our customers experience fewer pitfalls, our claims costs decline, and we can make insurance more affordable. As a matter of course we reward customers who minimise their risks by offering reduced premiums.
In addition, by being aware of the risks we all face, we can mitigate future risk and identify potential opportunities. We researched the issues that will have significant short and long-term impacts on the way we do business and emerged with four key themes: changing demographics, climate change, trust and credibility, and sustainable growth.
By responding to these risks now, we will deliver value to our stakeholders in the future.
Changing demographics
The demographic shifts in the global population pose many challenges for business.
Ageing is, and will continue to be, one of the fundamental demographic changes affecting communities globally. Not only do we need to think about how we can tailor our products and services to suit the ever-increasing number of ageing customers, but we need to ensure we employ people who can understand their needs.
In fact, we want to create a workforce that mirrors the demographics of the community and our customers. And, equally importantly, in the face of a shrinking labour market, we need to find ways of retaining and attracting talented workers of all ages.
IAG’s Age Management Program helps us access a wider pool of talent. Part and parcel of managing older workers is recognising they have different needs compared to younger workers. We must and do provide flexible working options so they can manage their priorities. This imperative is boosted by the numbers of women returning to the workforce after childbirth, and the fact that more men are opting to share parental responsibilities. Encouragingly, we have more employees working part time than ever before.
It is also encouraging to see that our programs to support and develop high performing women are not only reaping positive results, but are being recognised externally. For the second year in a row, IAG was awarded Employer of Choice for Women status from the Equal Opportunity for Women in the Workplace Agency (EOWA).
Climate change
Weather is core business at IAG, and it’s changing. The likelihood of increasingly severe storms is well established in the scientific community. Our people have first-hand experience of the fall-out of these events, helping our customers and managing their claims during these traumatic times.
We believe it’s possible to reduce the impact of climate change, and therefore extreme weather events. We are a leading advocate for taking action now, and are a founding member of the Australian Business Roundtable on Climate Change. The Roundtable suggests that, if the right steps are taken, Australia can achieve a 60% reduction in greenhouse gas emissions from year 2000 levels by 2050 while maintaining strong economic growth. To this end, the Roundtable recommends that business and governments work together to frame and implement policies on three fronts:
- design a “long, loud and legal” framework to establish a carbon price signal;
- encourage innovation and investment in emerging and breakthrough technologies; and
- build national resilience to the impacts of climate change.
As more and more prospective IAG employees ask about our environmental position, we are proud to be able to tell them of our strong stance on climate change, the research we conduct to support this stance, the work we are doing to minimise the impacts of changes in the weather, and our role in helping our customers to adapt to the new weather impacts.
- This year we developed Climate Help, an Australian industry-first online product that allows people to reduce their own impact on the environment by offsetting the carbon emissions from the vehicles they drive.
Our Australian Risk Radar products for farm and office add to the suite of products that helps our commercial customers manage their health, safety and environmental risks.
In addition, we have made some good progress in reducing our own environmental footprint. As reflected in “Environmental performance”, we are tracking well in reducing our environmental impacts.
Trust and credibility
Being a sustainable business and earning the trust of the communities in which we operate go hand in hand. To this end, considering the needs of those groups of people who impact on us, and are impacted by the decisions we make, influences everything we do.
This is typified by our decision to retain the Care & Repair system for car repairs in metropolitan NSW. Care & Repair is a web-based motor repair management system that we have been operating successfully in other Australian states for some years. A number of smash repairers, who faced increased competition as a result of the new customer system, campaigned against it.
The experience has taught us a lot about how our decision to introduce a new way of working impacts on an industry that relies on us – particularly an industry that is undergoing major changes due to the fact that fewer cars need repairing because of drier weather and better quality vehicles.
We listened to our stakeholders and have changed our approach to choice of repairer as a result. We are well on track to improving the way we work with our smash repair industry partners so we can move forward positively.
We also recognise the importance of having an outside perspective on the issues that matter most to our customers and the broader community. To this end, we have established an Expert Community Advisory Committee, which will be an ongoing source of feedback on issues and opportunities from people outside the company. The Committee has provided us with an independent commentary on this report. More information on the Committee members can be found here.
Sustainable growth
Through our disciplined approach to underwriting, introduction of initiatives to improve our customer service, and our strategy to achieve scale and diversification, we have maintained strong margins despite intense competition in the Australian and New Zealand insurance markets.
The work we do to engage our employees directly relates to our performance. The more engaged with the business our employees are the more productive, efficient and innovative they will be. This in turn helps us drive great customer experiences, which in turn positively impacts on the profitability of the company and our ability to keep insurance affordable.
The price of motor insurance is a case in point. As at February 2006, the average car comprehensive premium in NSW equated to 50% of one week’s earnings (based on published NSW average weekly earnings) compared with an average of 60% over the past seven years.
With a goal of delivering top quartile shareholder return over the long-term, our strategy has been to build an international portfolio of insurance assets- with an initial focus on Asia- so that we can retain an efficient and competitive cost of capital.
This year we invested in insurance businesses in Thailand and Malaysia, and signed a memorandum of understanding to acquire a 24.9% investment in China’s second largest general insurer, China Pacific Property Insurance Company. We fundamentally believe that this investment in China will be a cornerstone of our future due to the projected growth of the Chinese insurance market.
These investments are part of our plan to build a very strong position in the world’s fastest growing insurance markets.
The growth of our business internationally precipitates careful consideration of the social, economic and environmental impacts of our offshore businesses. We are currently working on a Code of Ethical Business Conduct that will help define how we operate in other parts of the world. This Code will clearly articulate our principles for acceptable behaviour, irrespective of where we do business. The Code will be released in the coming year.
In summary
Overall, the past year has been very successful for IAG. We are pleased that our efforts have been recognised with a number of awards, including "General Insurance Company of the Year" from the Australian and New Zealand Institute of Insurance and Finance; and inclusion in the Global Top 100 Most Sustainable Corporations in the World by Corporate Knights and Innovest Strategic Advisors.
We’re improving our performance all the time, seeking to ensure high ethical standards of behaviour while delivering great products and services to our customers, a great workplace for our employees and solid returns to our shareholders.
It is gratifying to be acknowledged as a leader in sustainability, especially as we have set very high standards for ourselves. We are pleased with our progress to date, and we are invigorated by the work we have ahead of us.
Mike Hawker
Chief Executive Officer
James Strong
Chairman
