IAG moving ‘beyond insurance’

Wednesday, 4 December 2024

New Zealand is prone to earthquakes, but in recent years there has been a move by insurers to move to more ‘granular’ risk-based pricing, where owners of homes in risky places pay proportionally more for insurance than owners of homes in less risky places.

BY THE NUMBERS: The country’s largest insurer IAG has briefed fund managers and investment analysts on its strategy, including its ambition for a return on equity that’s higher than the big banks boast.

The numbers give an insight into the insurer behind the State, AMI and NZI brands, which also provides the grunt behind the house, contents and car insurance provided by ASB, BNZ, Westpac and The Cooperative Banks.

14% to 15%

The big four Australian banks have been repeatedly criticised in the past 12 months for their high return on equity compared with banks overseas, with some saying it is underpinned by an implict taxpayer guarantee to bail them out, if they fall over.

The Commerce Commission’s market study into banking focused on profitability. New Zealand’s banks had an average 12.6% post tax return on equity between 2010 and 2021, according to report commissioned by ANZ for the Commerce Commission inquiry.

IAG’s ambition was to earn shareholders a return on equity “through the cycle” of 14% to 15%.

Parents Damien Hanson and Alicia Burrows and their children have been living in a mouldy, flood-damaged house in Gisborne, but plan to move a new house on site.

However, house, car and business insurers such as IAG have much more volatile earnings than banks, sometimes having to cope with a massive earthquake or flooding event.

50%

The current insurance market in New Zealand generates about $10 billion of premiums for insurers. By 2030, IAG expects that to grow by a factor of 50% to $15b.

That’s not all going to be increases in premiums from current car and home owners, however, because the insurer is expecting there will be a lot more vehicles and homes to insure.

5.3 million

Today’s vehicle fleet has 4.7 million vehicles. That’s set to rise to 5.3m vehicles by 2030, IAG thinks.

2.3 million

Amanda Whiting, chief executive of IAG New Zealand, told shareholders that IAG ‘served’ one in two households in New Zealand.

The insurer says there are 2.1m dwellings now, which will rise to to 2.3m by 2030.

Three days

Among the achievements of the insurer is speeding up simple claims and cutting the number of times a policyholder has to speak with IAG people.

The insurer cut the time to close simple motor claims (think accidents like single vehicle accidents and collisions while reversing) has gone from 28 days to three days.

The number of customer “contacts” to close those cases dropped from nine to four.

IAG said 35% of its claims were now lodged digitally by customers.

10 AI use cases

Companies can do more with fewer humans, if they invest in AI.

Artificial intelligence and automation is beginning to change the insurance industry, cutting management expense ratios, and lifting profitability.

IAG’s New Zealand chief executive Amanda Whiting said the company has automated over 80,000 hours of work.

IAG now has its own artificial intelligence platform called AIP, and it’s been cutting the time it take to do many of things needed at the insurer, driving what Whiting called an “AI-powered productivity lift”.

IAG NZ had 10 AI “use cases” coming online in the current financial year, and 10 “machine learning” use cases going.

Machine learning can be defined as systems that are able to learn and adapt without human input, able to use algorithms and models to learn from data.

Four banks, three big brands

IAG is a chameleon insurance, operating behind a number of brands that could lead the casual observer to think there were more insurers operating in the market than there really were.

Two of the big four banks use IAG as an insurer for their customers.

There are two giant insurers- IAG and Suncorp (owner of Vero and majority-owner of AA Insurance) - and one medium-sized insurer, Tower.

IAG NZ collects about $1.6 billlion in premiums through State and AMI, with State being its value brand, characterised by “digital efficiency” and helping households with “simpler needs”, and AMI offering more personalised service and catering to people with “more complex needs”.

But it is also the insurer behind four banks collecting $600m in premiums from customers at ASB, BNZ, Westpac and The Cooperative Bank.

Finally, there is NZI, its big adviser brand, from which it collects $1.9b in premiums.

Three

There has been a change going on at IAG, which now owns two large and growing repairs businesses.

The insurer still pays claims that result in repairs to cars and homes being done by independent tradespeople.

However, it now has 11 motor Repairhubs up and down the country, and three Homehub sites (Auckland, Hamilton, Christchurch), doing repairs for policyholders who make claims.

The plan is to expand geographic footprint and breadth of the services they do and to not only offer repairs to homes and cars of people after insurance events, but to win non-insurance customers too.

Whiting told shareholders: “Our ambition is to become a connected customer business beyond insurance.”

It was becoming a connected business offering multiple services, she said.

90%

With insurance premiums having risen fast, insurers such as IAG track its “retention” rates of the proportion of customers that opt to stay with it, when it is time to renew their policies.

IAG told shareholders 90% of policyholders at AMI and State were choosing not to switch to another insurer, though there has been concerns that some homeowners may find it hard to find another insurer willing to take them on.

People with homes in flood-prone areas have experienced very large increases in their house insurance premiums.

68%

The rising cost of insurance is leading to more shopping around by homeowners. IAG, like other insurers, appears much keener on insuring lower risk homes than those in higher risk areas for things like floods.

It said 68% of quotes from people not previously with IAG for house insurance in lower risk areas ended up with them buying a policy, compared with 40% of quotes for homes in very high risk locations.

Shareholders were told IAG was moving to more “granular” risk assessments for premiums.

That’s code for people who own homes at greater risk of things like floods pay premiums that more closely match the risk than they used to.

Rising premiums are leading to insurers to “innovate” pondering cheaper forms of insurance with less cover.

IAG is looking to make changes too, though exactly what that means is not yet clear.

“As we look to continue to meet our customers’ evolving needs, we’ll be creating new product offerings and a new loyalty rewards and recognition platform,” it said in a statement to The Post. “We will share more about these initiatives with you when they are ready.”