To ensure we are here to assist our customers in the long term, we must take a compassionate but responsible approach to paying claims.

For example, payouts for an event, such as flood, for which insurers have not collected premiums, present a solvency issue and endangers the cover of customers who pay premiums for other risks and justifiably expect their insurer to be able to cover these.

IAG businesses work hard to ensure we can meet our customers' needs and help them get back on their feet when they need to make a claim. IAG's operating businesses all have their own systems to ensure the best possible response when our customers need us.

Whilst responding to claims is part of our day to day business, we are most put to the test when a major event occurs. Clearly when this happens, we will receive a large number of claims in a very short period of time. How we manage this is critical; we take the approach of prioritising customer claims based on the critical nature of the situation, to ensure that those most in need receive the help they require. For example, if a customer has lost their roof entirely they will be treated with the highest priority.

To help us manage major events, our businesses operate major event plans that divert extra resources to key contact centres or on the ground as needed. For example, our Direct Insurance business that operates under the NRMA, SGIC and SGIO brands, deploys its Major Event Rapid Response Vehicles (MERRVs), allowing Direct Insurance staff to be on the ground to provide practical help to our customers. The MERRVs include caravans that operate as mobile offices and satellite capabilities, which can be deployed to the site of a disaster to ensure customers can benefit from access to our systems.

In our intermediated business, CGU's on the ground response team, made up of rotating CGU volunteers with the required skill sets, was in North Queensland within 48 hours of the passing of Cyclone Yasi. The team was on hand to talk to customers and intermediaries, lodge claims and separate the critical from the not so urgent. Immediate payments were made into customers' accounts if they had lost everything.

Following the New Zealand earthquakes, mobile claims centres were set up in camper vans to enable staff to answer customers' questions and lodge claims (even helping customers of other insurers), as well as hand out water and food.

We are always looking for ways to help our customers make their claims as quickly as possible so that we can help them get back on their feet. In our Direct Insurance business, an emergency on-line claims lodgement facility has been developed to help customers lodge claims in a manner most convenient to them.

We take a partnership approach to these relationships, managing contractors to ensure they are readily available when our customers need them. This means we can anticipate issues before they occur and address them quickly if they do. For example if we identify an issue with a vehicle repair, we work closely with the repairer to have the issue rectified and ensure they understand our quality standards for the future. Our Direct Insurance brands report the results of our vehicle repair quality inspections each month on their websites.

We also work closely with repairers after major events like hailstorms. We send customers with damaged motor vehicles to specialist hail repairers to determine whether their vehicle is suitable for paintless dent repair. This form of repair allows customers to have their vehicles repaired more quickly and at a lower cost. It also has an environmental benefit as panels are more likely to be repaired than replaced, and painting is not required. The average time for a vehicle to be repaired using paintless dent repair is now a matter of days, instead of weeks for a conventional repair.

There is always opportunity to take these relationships further and realise more benefit, such as we have been doing in our Direct Insurance business in Australia. In September 2010 Direct Insurance launched EcoSmash, in conjunction with the NSW Office of Environment and Heritage (OEH). EcoSmash (www.ecosmash.com.au) is an interactive workshop and program that gives smash repairers information on environmental compliance, as well as advice on ways they can save money by eliminating waste and reducing energy and water consumption. It has an on-line self assessment tool and makes provision for smash repairers to have their business professionally audited by an environmental consultant. Some of the objectives of EcoSmash include helping smash repairers improve their environmental practices beyond basic regulatory regulations and helping in the management and reduction of costs for repairers, which should be reflected in the containment of claims costs.

IAG's relationships with suppliers help us deliver on our purpose. However, we need to ensure that we have met our customers' expectations, so feedback from them is vital.

We create the most value when we are close to our customers and IAG's devolved structure provides autonomy and accountability to our operating businesses, ensuring decision making is as close to the end customer as possible. The businesses have complete control over the levers needed to execute their strategies and manage performance within IAG's overall framework.

IAG's Direct Insurance business has introduced a significant change to its customer experience survey methodology to enable more immediate and more meaningful access to customer feedback to use in service improvement. It involves surveying customers, interacting across customer touch-points immediately after purchasing, amending or claiming on their policy, recognising that customer experience plays a significant part of a customer's advocacy for an organisation. This approach provides us with a customer advocacy score.

The new survey methodology enables near real-time measurement of performance, as seen by customers, and gives visibility of operational issues that might otherwise take months to emerge. Data is collected and reported monthly following a customer interaction and supplied directly to front line management via an intranet portal to enable service improvement initiatives to be identified, implemented, and measured by the business.

The approach began to be implemented in IAG's Direct Insurance business in July 2010 and complements the customer satisfaction data that IAG continues to report annually. Customer advocacy will be reported in future years, once it has been fully rolled out.

Our Australian intermediated business, CGU, derives the majority of its gross written premium through its network of over 10,000 authorised representatives and brokers. CGU depends upon relationship-based account management which includes both formal and informal feedback channels, keeping the business informed of the issues that matter most.

• proactive responses to customers;
• communicating with customers via text messaging;
• proactive claims handling;
• additional training for customer-facing employees; and
• other customer communications activities.

Whether it's an individual, a corporation, or a broker, in Australia, New Zealand, Asia or the UK, our focus is on helping our customers manage their risks. It is only by listening to our customers that we're able to stay relevant and tailor our products and services to meet our customers' needs.

Our approach to new product development means that the pricing must be sustainable; that is, enable us to charge an appropriate level of premium such that where risk becomes a reality, we are able to fulfil our commitment to make a claim payment. Moving quickly to fill a gap in the market without adequate information to price the risk has the potential to create an unstable and unsustainable pricing structure, which will ultimately disadvantage customers.

We price our insurance products by taking into account both the cost of the risks that we are insuring, and the customer and market dynamics. IAG's businesses follow defined procedures to consider all relevant pricing impacts, including the likelihood of risk, costs of reinsurance, market conditions, return on capital requirements, the level of competition, and customer feedback.

Sometimes, a particular risk may incur a higher premium, potentially placing insurance out of the reach of customers. IAG looks at ways to continue to price its insurance products so they can still be affordable. For example, car insurance products offer flexible excesses to enable customers to determine the premium they are prepared to pay based on the level of excess they select.

The level of insurance penetration plays a role in the broader economy since insurance removes a substantial burden from government and taxpayers - freeing up funds to be dedicated to essential public services. Consequently, it is important that insurance is an available and affordable option for those wishing to manage their risks.

IAG can respond to this on several levels. Firstly, we can look at products that might encourage people or businesses to take out insurance. For example, State Insurance in New Zealand responded to a gap in the market by introducing its Favourite Things product in August 2010. This policy allows customers to insure specific items. It helps customers safeguard what's of value to them, like their TV, laptop, mobile phone, camera, and music equipment, and lets consumers choose the level of cover they take out. Previously, these customers may not have been able to take out insurance, for example, if they lived with multiple flatmates. Interestingly, 60% of customers taking out this insurance in the first eight months of its availability are under the age of 30.

In India, SBI General, IAG's joint venture with the State Bank of India, is developing a composite micro insurance product as a result of a survey conducted by SBI Life. Micro insurance is typically characterised by a low premium and low coverage limit. The product is a combination of SBI Life and SBI General insurance covers and will be available to India's rural population. It is designed to cover loss of life and disability due to an accident as a compulsory cover but also provides optional covers for hospital, a critical illness, and asset insurance. The product is now in the process of gaining regulatory approval. Once approved, the product will be launched initially in a few selected districts on a pilot basis and based on the results from the pilot and feedback, may be extended to other locations. SBI General sees this is an important part of growing into a sustainable organisation in India serving the needs of the broader community.

We can also encourage customers to check their level of insurance cover and engage with us on a more regular basis, rather than just at sales and claims time. For example, our NRMA, SGIC and SGIO brands have a Home Insurance Calculator on their website which is intended to help ensure our customers are adequately covered for any loss should it occur, whilst our CGU brand provides guidance on things that might affect the level of cover a customer has.

In New Zealand, our NZI brand that recently conducted a program to encourage customers to check that their insurance covers the value of their contents by offering to increase of contents insured without charge until their policy is due for renewal. State Insurance in New Zealand also ran a campaign during FY11 with customers with comprehensive contents insurance who did not change the sum insured over their last two renewals, encouraging them to re-check the value of contents insured with a Content Quick Check sheet.

As well as research and listening to our customers, IAG also works with governments to make insurance more affordable.

Tax is a major contributor to the cost of insurance policies in Australia and Australians pay more tax on their insurance than just about any other nation - about $4.25 billion in total per year. In particular, inefficient state levies - such as insurance stamp duty and NSW's fire services levy - need to be replaced as a priority with more equitable revenue measures. In NSW, taxes can add a crippling $40 to every $100 of premium4.

IAG advocates for removal of unfair burdens on insurance customers and has made a number of submissions on the issue in FY11.

In August 2010, we were pleased to hear the Victorian Government announce it would abolish the fire services levy, following the recommendation of the Victorian Bushfire Royal Commission.

However, even with the right tax reform, the affordability of insurance is likely to remain an issue for a very small proportion of properties that have been placed at extremely high risk by poor planning decisions. The most sustainable way to manage the cost of risk in the longer term is to boost resilience via adaptation (planning, building standards) and mitigation, ensuring that our community is adequately prepared, ideally preventing and if that is not possible, adapting to the changing nature of its risks. Adaptation reduces both the exposure to risks and the cost of claims. In turn, this helps to keep the cost of insurance down. Development, planning, zoning, building codes and infrastructure in those areas at risk are particularly important decisions that affect the risks faced by communities. As an organisation we have made a commitment through the National Disaster Insurance Review to work with local governments to share information and perspectives on the risks that they face and how they might ensure their communities are more resilient in the future.

Communities need to understand the risks that apply to their area as too many people are simply not aware that they live in an area that has been subject to flood or fire many times in the past. Each of our operating brands presents information on their websites to help customers identify and manage risks. We also share information and knowledge through community partnerships.

1 Getting home insurance right - A report on home building underinsurance, September 2005.
2 The Insurance Council commissioned the study "The Non-insured: Who, Why and Trends" into non insurance by Dr Richard Tooth and Dr George Barker of the Centre for Law and Economics at the Australian National University to add to the body of knowledge on non insurance in the Australian community.
3 The Insurance Council of Australia, "Non-insurance in the small to medium sized enterprise sector", December 2008
4 Source: IAG's submission to the Inquiry into state government taxation and debt by economic development and infrastructure committee, September 2009

We have formed important partnerships to help our customers prepare for adverse events through education campaigns and community engagement by promoting initiatives that reduce risk at home, on the road and in the workplace, or that help communities adapt to weather related risk.

For example, through our Direct Insurance division, we offer community grants to groups looking to reduce risk at home and on the road, or help communities become more sustainable. We partner with Kidsafe in NSW, ACT, QLD and WA to provide free child restraint checks to parents and carers. Held at local branches and shopping centres, this free service teaches parents and carers about the changes to national child restraint legislation and gives one-to-one advice about how to seat their children safely. This year more than 750 parents and carers have had their child restraints checked as a part of this service.

In response to driver fatigue as a major cause of crashes in New Zealand, our State business continues to support the State Driver Reviver program, to help drivers stay alert on the roads.

We also provide support when events do occur and consequently our Direct Insurance business has a long-standing and major sponsorship of The Salvation Army Emergency Services (SAES) to provide practical support and encouragement to victims and emergency workers in crisis or disaster situations.