The media’s reporting record profits in the insurance sector – we wonder how that can be when every other industry is suffering ever decreasing margins, particularly car insurance repair?
Insurance sector magazine CoverNote reports that Australian giant corporate SunCorp, owners of Vero Insurance and majority shareholder of AA Insurance, recorded a profit boost of 81% for its New Zealand business where it pulled in over $67 million! Perhaps this was helped by Vero’s latest venture into owning their own car insurance repair collision repair facilities in NZ, we’re told this is much to the detriment of the already struggling panelbeating sector here.
CoverNote also reported on the other Australia mega brand IAG which includes NZI, State, Lumley and AMI. They say that IAG’s NZ earnings rose to $119 million for the SIX MONTHS to 31st December 2017, up from $36 million for the same period ending 2016. They advise that the result was mostly due to a 15% drop in claims expenses – again we’re told that car insurance repair rates paid to IAG contracted panelshops is so low that many of them are simply closing the doors and walking away. We’re covered the subject before at https://crashmanagement.co.nz/collision-repair-sector-crisis/. IAG’s obviously in growth mode though with a reported increase in NZ premiums of 9.5% to $1.3 billion. The wider Australian group has just posted a 24% gain in net profit to $551 million!
Meanwhile IAG are looking at moving more NZ jobs off-shore to reduce their costs even further. In 2016 IAG announced it had engaged Philippines and India based companies and outsourced car insurance repair claims and other functions off-shore. See more at https://crashmanagement.co.nz/nzi-car-accident-claims-affected-mass-redundancies/
Outsourcing to cheap labour countries seems to be popular in insurance, QBE tried it a few years ago but then rapidly unwound the deal when it discovered that Manilla didn’t understand New Zealand geography or New Zealanders. They’ve now moved back to an NZ based model and taken up residence in a premium 30 level central Auckland Queen St address. Claims and car insurance repair processes times have improved significantly since.
Let’s not forget YOUi and how could we. This South African based multi-national was fined $320,000 in December 2016 for misleading sales practices after the Commerce Commission took them to court. YOUi appears to be undergoing its own transformation, at the time of the court case they employed over 400 staff in New Zealand, but that’s now dropped to around 250.
Tower Insurance has had its ups and downs recently and were hoping for a marriage made in heaven with Vero, but the dream was shattered in July 2017 when the Commerce Commission declined Vero’s application to acquire 100% of the shares in Tower Limited. See the full story at https://crashmanagement.co.nz/vero-insurance-loses-tower-insurance-bid/. CoverNote has now reported that Tower’s Christchurch office will be closed with the loss of about 20 employees.
Now it appears Winston Peters wants the last word – doesn’t he always? This time he’s got an opinion on the insurance sector despite never having worked anywhere near it, or anywhere else for that matter. For the record, Winston wants a state-owned insurance company. Apparently his comments were sparked by the news that IAG is planning to move jobs from Christchurch to the Philippines, a move he said was “chasing third-world wages”. Sorry Winston, you may have a point (or two) but everyone knows that claims and car insurance repair service levels would NOT be best managed by government employees.
Perhaps he’d settle for a NZ owned insurance company rather than a tax-payer funded one? And we already have one of those – Protecta Insurance, independently owned and operated by kiwis for kiwis. With the best policy terms & conditions, and car insurance repair service in the market, any profits are also retained right here in New Zealand. Get the best from the best at https://www.protecta.co.nz/.
Mike
Quite a cynical commentary on the insurance sector Crash Management, but you have some fair points.
Please god spare us from Winston Peters though!
On another point would I be right assuming Protecta Insurance is one of your clients?
Crash Management
hi Mike and thanks for your comments, we couldn’t agree more with your first point!
In regard to Protecta Insurance, you are correct. Protecta are a premium client and quite unique in the insurance sector, not only from the point of view of their NZ ownership (though we do love that) but also for their genuine customer-focus. Customer service levels and benefits are first-class, Protecta are also very relationship based so a pleasure to serve! See more at http://www.protecta.co.nz
Mike
You might be interested in this related statement from Gary Dransfield at Vero who makes some good points particularly his opening line:
A wise politician once said everyone is entitled to his own opinion, but not to his own facts.
The Labour Party’s policy to create another Government-owned insurer reminded me of this. The opinion of the Party is that New Zealand is disadvantaged because insurance company profits flow overseas and there is not enough local customer choice.
Their solution is to create a new insurer. They believe that would lower prices, increase service quality and reverse the flow of profits and capital out of New Zealand.
It is understandable a major political Party and its leaders have strong opinions on key industries such as insurance.
Industry leaders such as Vero need to assist the current Government – and all future Governments – improve insurance. That includes offering constructive comment on the KiwiAssure proposal.
In Australia there is one general insurer for about 200,000 people. In New Zealand there is one general insurer for about 125,000 people.
The industry here is concentrated – but there is no lack of choice. It is hard to see how another general insurer will have much impact.
Insurers can lower their costs by improving their risk assessment and claims management. They can try and gain more business by cutting prices.
If they lower their prices or try to boost their sales without first improving their risk assessment, claims management capabilities or capital reserves they will run into trouble. That has already happened in New Zealand. It is the same for a Government or private insurer.
The difference is that the Government insurer wastes taxpayer money when it gets into trouble; the private insurer wastes shareholder money.
Politicians and business leaders agree New Zealand needs to boost productivity to increase growth and living standards. The New Zealand Productivity Commission is investigating how to boost productivity in the services sector.
The Commission says the finance and insurance industry had well above average growth in labour productivity over 1990 to 2011.
Capital investment by insurance companies and others in the industry grew – even during the global financial crisis.
Insurance companies are amongst the most productive in New Zealand. They are also investing more capital here than most in technology and efficiency improvement.
Vero is the second largest insurer in New Zealand and one of the most efficient. Yet we still plan to spend over $80 million in projects to improve our risk assessment, claims management and information technology.
Insurers are responsible for the largest inflow of capital in New Zealand’s history to meet unexpected, natural disaster costs. There will be a capital inflow of over $30 billion to settle Christchurch insurance claims.
Insurance companies are also amongst the highest contributors of inputs to New Zealand’s exports. The Productivity Commission has estimated finance and insurance industries contribute an estimated $2.5 billion as inputs to New Zealand exports.
The facts are that insurance companies are amongst the most productive in New Zealand and invest more capital than most. They are responsible for the largest import of capital in New Zealand’s history.
They are one of the highest contributors of service inputs into New Zealand’s exports. The Productivity Commission says they employ people with higher skills, pay higher wages and invest more in new technology.
It is just my opinion – but I believe these are the companies New Zealand should be encouraging!
Diana
Generally brokers were surprised and disappointed with the ComCom decision on IAG’s acquisition of Lumley so many of us keep a close watch on market dominance effects and any hint of bad behaviour. There was a disturbing report out of Australia today courtesy of Insurance News regarding IAG owned Swann MV insurance – Basically, a policy clause up-sell money maker with little to no real customer benefit. The full story’s here, also including the Youi fiasco http://insurancenews.com.au/royal-commission-live. Here’s the Swann Ins extract:
IAG’s EGM Business Distribution and Group Executive Ben Bessell was quizzed over the sale of add-on insurance for vehicles. Counsel Assisting, Mark Costello, put Mr Bessell under pressure over IAG-owned Swann Insurance’s oversight of authorised representatives selling add-on products through motor dealerships.
Mr Bessell accepted the oversight process provided a “light touch”, there had been a lack of face-to-face audits and that Swann could not be certain that ARs were following correct procedures in their dealings with customers. Mr Bessell says Swann has halted the sale of the add-on products through dealerships due to the issues in the market and as the group focuses on its “customer-centric” approach.
Swann expects to complete its remediation payments to consumers by January 31 next year. It is currently about halfway through the process. The hearings resume at 9.30am tomorrow morning, and insuranceNEWS.com.au will continue to keep you informed via our live blog.