Establishment and Early Operations
Explain how and why real world organisations are managed, and how they respond to changes in the environment.
The storyline of IAG can be taken back to the early 1920s when an association by the National Roads and Motorists was established and began its operations of delivering insurance services to its affiliate members in NSW across CGU business and has since been providing insurance products for more than 160 years in Australia (Insurance Australian Group Limited, 2018). In 1998 NRMA played a critical role of acquiring SGIO ranked as one of the largest provider of insurance products that are related to fire, and SGIO was also the primary provider of general insurance in Western Australia. NRMA also extended its operations beyond and across the Asian market and was attracted majorly by safety insurance in Thailand.
In early 2012, IAG completed a business deal that saw the purchase of AMI insurance positioned as the second largest insurer and a provider of direct personal lines as at the time in New Zealand. Towards the end of 2012,49% of AmG, a Malaysian firm owned by IAG facilitated the acquisition of another Malaysian firm, Kurnia Insurans prompting AMG as the largest provider of general insurance in Malaysia as the company commanded 13% of the Malaysia market in the provision of general insurance and was the leading in motor vehicle insurance (Insurance Australian Group Limited, 2018). In mid-2012 saw IAG acquire more than 30 % of a Vietnam based Assurance firm, AAA which saw the company increase its presence in a growing market for the insurance products through an established partner, AAA.
In 2013, closed a business deal that saw Equity Red Star enterprise being sold to Aquiline Capital Partners, a disclosed private equity enterprise firm that specialized in delivering financial services for more than $ 130 million (Witcomb, 2013). Towards the close of 2013, IAG agreed to purchase Wesfarmers underwriting segment for $1.9 billion and this strategic as it strengthened IAG’s positioning domestic markets of Australia (Insurance Australian Group Limited, 2018). The acquisition entailed Wesfarmers underwriting enterprises that trader under the alias WFI and brands from Lumley Insurance as well as one-decade distribution consensus with Coles.
In 2017, IAG made announcements with regards to the launch of Firemark Labs, an innovation hub involving InsurTech and was stationed in Singapore (Insurance Australia Group Limited, 2018). This move will ensure that it links the insurer to the network of global innovation and the vibrant entrepreneurial society in Singapore. The hub will serve as IAG’s incubator as it will facilitate the working of top talents, research, and partners in technology which will ensure the creation of new products and services thus improving client experience across Australia all the way across Asia. In July of the same year, IAG revealed its mission of developing a Unit Australian division, this would simplify the operating model adopted by IAG it would bring together the former Australian Consumer, Australian Operations, and other satellite Divisions together. In July, IAG accepted and established the modern innovation incubator, the Firemark Labs Sydney that served as a component of its long-term strategy of generating expansion of business based on client-led and data-driven information. The incubator will play a critical role in linking talents from IAG, capabilities, and insights with outside partners who may help IAG craft new client experiences for today and the future.
Acquisitions in New Zealand, Malaysia, and Vietnam
Alleged allegations with regards to fraud against insurance companies have facilitated a move by consumer groups that suggest that fraudulent sale malpractices are endemic in the insurance market. One of the former workers who worked with Combined revealed how agents get desperate and as such opted to maximize commissions by duping consumers entailing vulnerable Australians (Insurance News, 2015). This is just one illustration of criticism of the operations of insurance companies that have a presence in both Australia and New Zealand has been dealing with criticisms both from the inside and outside that have in one way affected its operations as illustrated in the cases below.
With the last remaining boardroom that connects Insurance Australia Group to the last stages of the company being listed as independent from NRMA, monitoring enterprise could have been broken following the impending exit of James Strong who had acted as the chairman for more than seven years.
Mr. Strong was strategic in the operations of IAG as he led the company in realizing record profits, however 2007 ignominious $260 million in net loss announced in 2008 made the chairman to reveal his intentions of stepping down during his tenure as the director and quit the board even before his retirement that was to be scheduled in 2011 (John, 2008). His decision to resign came after a traumatic period for the IAG, recognized as the proprietor of some of the best brands in Australian insurance market. However, the earnings had been dropping for three years in a row following the loss of Michael Hawker a chief executive officer and the company, fortunately, survived an attempt for a controversial takeover by QBE. Mr. Strong assumed the position of chairman in 2001 a year following IAG float attempts and bore criticism for being responsible for the fall of company’s value exacerbated by the wrong timing of investing close to $2 billion in British territories for two years (John, 2008). The board under the new chief executive, Mike Wilkins sold most of the British enterprises. The announcement made by Mr. Strong of the impending departure was helpful in easing tensions from the criticisms leveled against him in one of the IAG’s board meeting in Sydney, though it did not stop close to 20% of investors voting against being re-elected (John, 2008). He shared his intentions of serving as the chairman for an unspecified period so that he could provide stability and continuity of the company and would help the management in turning the company towards the right direction.
Equity Red Star Enterprise and Wesfarmers Underwriting Segment Acquisitions
The perennial criticism leveled against insurance industry is that it neglects to do the job it was tasked to deal with and the continue unwillingness to pay claims. However, IAG claims that this is not true as the reports by financial ombudsman indicate the 98% of the claims made with regards to insurance have been paid without disputes (IAG, 2012). The company continues to state that clients who make the claims have shown higher levels of satisfaction and are more likely to stick with IAG for more services. The company asserts that the perception of people with regards to the performance of the insurer is undoubtedly propelled by the comments they hear from other parties. In a recent research survey conducted, it indicated that approximately 16 % of clients fail to trust insurers to pay their claims (IAG, 2012). That can be equated to one in five people and is an alarming number that the industry should address.
However, such data is undesirable with regards to the Queensland floods. If interest is taken regarding the topic one would be left with the notion that insurers such as IAG never pay claims. The storms and the flooding began at the end of 2010 and led saw thousands of individuals being evacuated from towns and cities and three-quarters of Queensland was declared a zone of national disaster. Days later, thousands of houses in places such as Brisbane got inundated due to the rise of Brisbane River.
Key competencies in an organization can facilitate achievement of success in other similar related products. A good example that can demonstrate this is the GE healthcare research that was critical in facilitating the development of better drilling machines in the oil sector (Fern Fort University, 2017). The development and growth of the market will enable dilution of competitor’s edge and assist Insurance Australia Group to raise its competitiveness with regards to other key competitors.
The economic prosperity and the increase of consumers’ disposable income that facilitates an increase in their spending habits following years of recessions and slow economic growth rate presents Insurance Australia Group a perfect opportunity to capture new clients and increase its share of the market (Witcomb, 2017).
The development of new technology presents platforms for the Insurance Australia Group to norms of differentiated pricing mechanisms in a new market (Fern Fort University, 2017). This will assist the company in maintaining its group of loyal customers while at the same time lure a new segment of clients through value-oriented propositions.
Launch of Firemark Labs and Development of Unit Australian Division
The decreasing costs associated with transportation due to lower prices of shipping will also cut down the operational costs of Insurance Australia Group’s products thus according to the company the opportunity to boost its profitability or transfer the benefits directly to the customers facilitating a gain of market share.
The existence of free cash flow that is stable is an opportunity for the company to invest in other product segments (Fern Fort University, 2017). The availability of lending facilities by financial institutions such as banks allows IAG to invest in modern technologies as well as in developing new product niches. This should facilitate the opening of a new window of avenues for IAG in other product segments.
The growing strengths of local insurance firms present threats in some established markets since competition makes local insurance firms incur higher margins (Fern Fort University, 2017). Also, limited skilled employees in some specific global markets present a threat to a stable stream of profits for the IAG in such market niches. The other potential threat is that which pertains to the demand of products that are profitable as it is seasonal and any unforeseen events in the peak season could negatively impact on the profitability of IAG’s operations in the short-term (Chatterjee & Daga, 2018). With the increase of intense competition has seen stable profitability attract a number of firms in the industry increase in the past two years and this has led to a downward pressure not only on the firm’s profitability but also on the overall sales generated (Reuters, 2018). The issue of variations in the applicability of liability laws is different in different countries and IAG may fall victim to liability claims that vary in policies in such markets. The environmental regulations developed under the Paris Agreement in 2016 may be a threat to particular existing product segments. The increasing concerns to have wages increased to $15 per hour and increasing prices exhibited by the Chinese market can mount grave pressure on profitability made by AIG as it will see the profit margins greatly reduced (Fern Fort University, 2017).
IAG is dedicated to developing a workforce and culture where IAG respects and values the varying experiences exhibited by different people in the workplace (IAG, 2017). The company welcomes and embraces the opportunity and benefits that arise from business opportunities by encouraging the concept of diverse ideas and opinions for the benefit of the organizations and stakeholders in general. The company recognizes the importance attracting and retaining employees with the right skill set as they are crucial in propelling future success for the company and attain the overall goal of making IAG a globally respected company that provides general insurance policies to companies.
Criticism Against Insurance Companies
Diversity is important for AIG as the company understands that talent is not fixed to one gender or group of individuals. Tapping and maintaining business leaders that are passionate about AIG’S customers has been the pillar behind the company’s success (IAG, 2017). The company has a culture of prioritizing and putting the needs of its clients first and this is the sole reason why the company values employees that adore AIG’s customers. Having diverse skill sets and experiences promotes creativity and innovation which facilitate IAG’s optimal financial performance.
AIG also focuses on gender improvements, tribal diversity, and age in their organization. The company believes that improvements in such areas boost the support needed for its employees through sustainability of workforce thus developing and establishing a competitive edge by leveraging innovation and getting closer to the pool of customers.
AIG had made engagements and commitments and is targeting to have the number of women in executive management positions in Australia reach the target of 40% by 2020 (IAG, 2017). However, the projected figure for countries in Asian territories is set at 30% within the same stipulated timeframe. In 2016, it was reported that approximately more than 30% of roles in senior management were filled by women across the group and accounted for 33% of Australian and Kiwi based businesses (IAG, 2017).
IAG has played a key role in transforming and contributing to the development of insurance sector Australia. The company’s strong organizational culture that promotes diversity and inclusion for all has played a vital role in determining the success of the company
References
Chatterjee, S. & Daga, A., 2018. Insurance Australia Group Plans to Sell Troubled SE Asian Businesses: Sources. [Online]
Available at: https://www.insurancejournal.com/news/international/2018/04/20/486911.htm
[Accessed 9 May 2018].
Fern Fort University, 2017. Insurance Australia Group Limited SWOT Analysis / Matrix. [Online]
Available at: https://fernfortuniversity.com/term-papers/swot/nyse/4969-insurance-australia-group-limited.php
[Accessed 9 May 2018].
IAG, 2012. In defence of the insurance industry. [Online]
Available at: https://www.iag.com.au/defence-insurance-industry
[Accessed 9 May 2018].
IAG, 2017. Diversity, inclusion and flexibility. [Online]
Available at: https://www.iag.com.au/careers/diversity-inclusion-and-flexibility
[Accessed 9 May 2018].
Insurance Australia Group Limited, 2018. Purpose and Strategy. [Online]
Available at: https://www.iag.com.au/about-us/who-we-are/purpose-and-strategy
[Accessed 9 May 2018].
Insurance Australian Group Limited, 2018. Our history. [Online]
Available at: https://www.iag.com.au/about-us/who-we-are/our-history
[Accessed 9 May 2018].
Insurance News, 2015. Combined Insurance: critics say it’s tip of iceberg. [Online]
Available at: https://www.insurancenews.com.au/local/combined-insurance-critics-say-its-tip-of-iceberg
[Accessed 9 May 2018].
John, D., 2008. IAG sidesteps critics with chairman’s early exit plan. [Online]
Available at: https://www.canberratimes.com.au/business/iag-sidesteps-critics-with-chairmans-early-exit-plan-20081111-5mly.html
[Accessed 9 May 2018].
Reuters, T., 2018. Insurance Australia Group cuts catastrophe reinsurance coverage. [Online]
Available at: https://www.businessinsurance.com/article/20180103/NEWS06/912318229/Insurance-Australia-Group-cuts-catastrophe-reinsurance-coverage
[Accessed 9 May 2018].
Witcomb, G., 2013. IAG buys Wesfarmers’ insurance arm. [Online]
Available at: https://www.investsmart.com.au/recommendations/iag-buys-wesfarmersand039-insurance-arm/60081
[Accessed 9 May 2018].
Witcomb, G., 2017. Which is Australia’s best insurer?. [Online]
Available at: https://www.investsmart.com.au/recommendations/which-is-australias-best-insurer/139109
[Accessed 9 March 2018].
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