Strategic Management Analysis Of Insurance Australia Group

Corporate Identification

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In this changing economy, Strategic management analysis is used by a number of organizations for the purpose of conducting the operations of their business in effective manner.  There are number of factors which affect the operations of the business directly, and these factors are comprised into two parts that are internal factors and external factors. It is necessary for the company to evaluate all these factors for the purpose of ensuring effective strategic plans and decisions. Strategic analysis is considered as the research conducted related to the environment of the business in which organization operates and conduct its functions. In other words, it is considered as the responsibility of the strategic planner for the purpose of identifying the needs of their business and also for developing the plans in context of guiding the directions to the business (Sarkis&Sundarraj, 2000).

For framing this report, Insurance Australia group (IAG) is chosen as case study, as this company is considered as the one of the most trusted and respected insurance brands in those regions in which company conduct its operations. Structure of this paper consists four parts that are identification of the corporation, sources related to the sustainable competitive advantage, corporate revenue centres, and diversification strategy of the business is defined.

IAG’s businesses ensure the $11 billion of premium on annual basis, and for this purpose this company sells insurance under different leading brands, and these brands includes NRMA Insurance, CGU, SGIO, SGIC, Swann Insurance and WFI(Australia); NZI, State, AMI and Lumley Insurance (New Zealand); Safety and NZI (Thailand); AAA Assurance (Vietnam); and AsuransiParolamas (Indonesia).This company also shows interest in the general insurance through joint ventures in two countries that is Australia and India (IAG, 2018).(IAG, 2018)

Following are the operations of the IAG which are conducted with the help of numerous brands:

• This company distributes its short tail personal insurance products in victoria under the RACV brand, through the distribution relationship and guaranteeing joint venture with the RACV. All these insurance products are distributed by the RACV products and manufacturer of these products is the Insurance Manufacturers of Australia Pty Limited (IMA). IAG holds 70% in the IMA and 30% of the IMA is hold by the RACV.
• 100% stake is hold by the IAG in the WFI Insurance Limited (WFI), the underwriter of the general insurance products under the Coles Insurance brand.  Distribution of these products is done by Coles in context of the authorized representative agreement with WFI (IAG, n.d.).
• 6% beneficial interest is hold by the IAG under the Safety Insurance, based in Thailand, which trades under the safety and NZI brands.
• 49% of the general insurance arm of Malaysian-based AmBank Group, mGeneral Holdings Berhad (AmGeneral) is owned by IAG, and this company conducts its trade under the AmAssurance and Kurnia brands.
• 26% of the stake is own by the IAG in the SBI General Insurance Company, and this business unit is conducted in context of the joint venture underwritten with the State Bank of India.
• 17% of the stake is own by the IAG in the AAA Assurance Corporation, conduct its operation in Vietnam.
• 80% of the stake is owned by the IAG in the PT AsuransiParolamas, based in Indonesia.

In July 2017, establishment of the single Australian division is announced by the IAG, as this division helps the company in simplify its operating model by connecting the Australian Consumer, Australian Business, Operations and Satellite Divisions. It further helps in centralizing the accountability for the consumer product and functions related to the distribution and operations in context of Australian brands of IAG such as NRMA Insurance, CGU, WFI, SGIO and SGIC (IAG, n.d.).

This company operated almost two divisions in the Australia and these divisions are operated before the establishment of this new division, and recent financial results in terms of these divisions for the year ended 2016 is stated below:

• Division of Australian consumers allocates the products related to the general insurance directly to the consumers through the NRMA Insurance, SGIO, SGIC, and RACV brands, and it also allocates products indirectly with the help of intermediaries which includes financial institutions and affinity groups. GWP of $3 million is generated by the Consumer Division for the half year to 31 December 2016 and this accounted for the 53% of IAG’s gross written premium for the half year.
• Australia business division offers the insurance to the customers related to the business also, and these products are offered under the CGU, Swann Insurance and WFI brands. This division of the IAG generates GWP of approximately $1.4 billion for the half year to 31 December 2016 and this amount is accounted for 25% of gross written premium (IAG, 2016).

Business Operations and Brands

This company is the leading general insurance provider in the New Zealand through both direct and indirect channels. IAG sold the products related to the insurance to the customers in predominant manner such through direct channel (under the State and AMI brands), and through indirect channel (insurance brokers and authorized representatives) under the NZI and Lumley Insurance brands. GWP of approximately $1.1 billion is generated by the NZ for the half year to 31 December 2016, which represents almost 19% of the group GWP (IAG, n.d.).

On 31^st December 2016, in Asia, net amount invested by IAG is $797 million. Some of the markets of Asia in which this group conduct its operations are sated below:

• Thailand- beneficial interest of 98.6% was hold by IAG in Safety Insurance, a main motor insurer. IAG operates this business on the basis of single license by using two brands that are Safety (personal lines) and NZI (commercial lines). In this country, IAG generated GWP of $173 million for the half year ended 31 December 2016.
• Malaysia- IAG holds 49% of the interest under the general insurance arm of AmBank Group, AmGeneral Holdings Berhad (AmGeneral), and wholly owned subsidiary of these brands trade under the AmAssurance and Kurnia brands. In this context, GWP for the first half of the 2017 financial year was $245 million, with the share of the IAG’s being $120 million (IAG, 2017).

In the modern business world, when the competition rate increases on constant basis, it has become essential for the organisations to make sure that their resources of competencies will help them in giving competitive advantage over the rivals (Insurance Australia Group,2018). Modern day business environment calls for implementation of effective business functioning for ensuring long term growth. For ensuring long term growth the thing that is required the most is that all the units of the organisation must contribute the business (Coyte, Ricceri, & Guthrie, 2012).

There are four competitive advantages of the firm first is the research lab of the Insurance Australia gives them competitive advantage over the market. This is because the demands of the market are changing at much faster rate and the Insurance industry is developing accordingly (Insurance Australia Group,2018). In this regards, the research labs of the company gives them knowledge regarding how the market condition is changing, what sorts of the demands they have in the market. It also helps in ensuring that they make plans for ensuring that they are providing services as per the requirement of the firm (Saeidi et al, 2015). Research department also gives them sustainable competitive advantage as it is ensuring that there will be long term investments in the areas where the industry is moving. Since for having the competitive advantage over the rivals it is important that company have the strategies for making the things work in their favour. This also includes the foreign investments they want to do in their industry (Tabak, Fazio, and Cajueiro, 2012). After research the most crucial role that arises is of finance department as they will help the firm in achieving the goals under the financial limits. Since it has to manage the internal financial problems as well as also check the financial condition that is in the business environment (Dodgson et al, 2011).

Sources of Sustainable Competitive Advantage

Second is the that they have a high cash crunch as well as huge market base along with the larger numbers of loyal clients. The faith and trust that its clients have in them gives them the biggest competitive advantage over their rivals (Hackman, 2005). In order to reduce the complexity in their business decision making, they have been making decentralised business strategy. This helps them to make many decisions on the local basis but there will be cross checking of the decisions at the higher levels (Maditinos et al, 2011).

Third is their strategic planning team. Their decision making unit comprises of the members that is having higher knowledge of the business operations. This helps them in making of the business decisions especially related to the insurance policies more unique (Newson, et. al., 2017). Over the years they have been following many expansion policies which helped them in gaining the edge over the market as well as increase the revenue of the firm. Recently they are setting themselves for the retrenchment strategy where they will sell their four Asian units. This is because they are facing huge losses in the Asian market approx. 6 million AUD. Quick response to the business environment has been biggest competencies (Harley, et. al., 2011).  Till now it was the biggest insurer by market share in the countries like Thailand, Malaysia, Indonesia and Vietnam. With their investments in the new areas of the Insurance, they have ensured that there will chances of long term development (Acharya, Gromb and Yorulmazer, 2012).

Forth thing that provides them competitive advantage is that they have a highly skilled workforce, which has helped the firm in making competitive advantage over the rivals. In any Insurance firm, it is highly essential that they have a skilled workforce and it is the most basic thing that gives them competitive advantage over the rivals (Hawker, 2007).The quality services that IAG is providing to its market base helped them in adding value to its products and services and hence adding to client’s satisfaction.

It is the result of their sustainable approach that they got so many awards on different platforms in the year 2014, 2015 and 2016. It was also included in the MSCI Global Sustainability Index Series. It was also included in the FTSE4 good Index Series in 2016.

In IAG, various types of corporate revenue centres exist which is playing a crucial role in increasing the revenue of the company and hence ensuring success of the firm. They are not directly adding to the profits of the company rather they help in making the profits higher (Barney, 2012). They have their operation in various parts of the world and they are operating with various functional units (Benn and Dunphy, 2013). Revenue centres measures the revenue of the company in terms of output or fiscal standing and hence they are the corporate establishments that are exempted from accountability and profit generation.  The performance is measures by comparing the actual sales to the projected sales or number of revenue or sales per time scale (Theodosiou, Kehagias and Katsikea, 2012).

Their business unit relationship can be understood in terms of revenue as well as profits they are making.

Insurance Australia Group has large numbers of products and services lines available in their market. These lines are generating huge amount of profits for the company (Yazdifar and Askarany, 2012). It is to be understood that most of their products are made as per the demand in the market as well as the trend that is being followed within the organisation (Yates and Bradbury, 2010).Their financial report of 2016 depicts that the number of products that are making success in the market have increased (Díaz-Fernández, González-Rodríguez & Simonetti, 2015). All the three products line of the insurance industry in Australia is making profits namely general insurance, life insurance and health insurance. This company is offering its products in the areas like commercial, general, content and vehicle insurance. Their major product line that it is offering and is generating largest profits is their general insurance (Oh, Park and Ghauri, 2013). This is because they have huge amount of products in which they offer insurance. Their profits have raise up to $1.3 billion. With their joint ventures done in various parts of the world, they have been able to increase their market performance (DATE, 2015).

They have several units in various parts of the New Zealand and Australia. Their revenue summary table has been given below:

Insurance Australia group is doing very good business and have been earning higher revenues over the years.  There overall revenue for the year 2017 has been 11.8 billion AUD with the net income of around 929 million AUD. This gets possible because of the performance of its subsidiaries (Buchmueller et al, 2013). All their subsidiaries in different parts of the world are performing very well. It is very clear from their revenue and profit margins they have made in their business (Chang, 2011). With the powerful resources and subsidiaries that they have they can easily make their mark in the industry and hence a higher profits can be ensured(Suriadi, et. al., 2013). Few of their alliance partners are performing better than the company itself and hence they have a strong support from various partners (Kumar et al, 2011). This will help them in increasing their revenue in the coming years as well as it will assist the firm in coming at the top in the intense competitive environment that is present in the Insurance industry.This will also help in their expansion process as they will have a huge financial base (Kang, 2013).

This company is known for its large range of diversified products. This has helped them in capturing the larger part of the market (McWilliams and Siegel, 2011). Most of their diversified products are available in the field of general insurance where they are offering insurance for various types of products (DATE, 2013). Their diversification is not restricted to the products but they have a diversified range of subsidiaries that are offering various types of services to their clients (Smith, 2016). This has also helped them in making a diversified distribution channel that is capable of fulfilling the demands of their huge customer base. They have invested a lot in the recent years towards the insurance related to different types of products (Rothaermel, 2015).

With their subsidiaries in Asian region, they are becoming one of the biggest insurance providers in this region (Mazzarol, Limnios & Reboud, 2013). It some of the Asian countries they are the leaders in the market. There diversified products includes many types of general insurance, commercial insurance, vehicle insurance as well as contents insurance (Weerawardena and Mavondo, 2011). They have been able to capture the market base with the help of their subsidiaries. All their diversified products are capable of solving the needs of the large market base having people from different financial backgrounds (Joly,Feze and Simard, 2013). All their products have helped them ensuring higher customer satisfaction. They have been poor in collecting data regarding the industry. It has made their business process more complex and they have been poor in adding products to their portfolio (Coff and Kryscynski, 2011). This can be seen by the fact that they have still not invested in the health insurance which is considered to be one of the biggest business in the coming years (Abel et al, 2011). This has somehow slowed down the business process for the company. Their research labs would have helped them in creating new kinds of products and the number of investments that they are making in various fields is also high (Benn and Dunphy, 2013).

Their diversification needs to be in the current services they are offering like they must provide the vehicle insurance for different people in different sections of the society. They are not only making changes in their product range but are also making changes in the products they are offering especially in terms of returns they are making (Flynn, 2016). Product development is the type of diversification strategy it is using (Asgharian, Dadfar and Brege, 2012). This can be understood by the fact that even one type of insurance has various kinds of divisions. For the people that are from different salary groups can avail different kinds of Insurance services from the range of services they are offering (Erdorf et al, 2013).

There are few business units that are related constraints while there are some which are un-related. Related constraints means the business units that acts in the same business while the business units that is operational in other parts of the country is known to be as the unrelated constraints. The business units that are related constraints of the firm are NMRA Insurance Group Finance Ltd., NMRA Insurance Funding, Insurance Australia Funding 2007 Ltd., The Buzz Insurance Pty Limited, Swann Insurance, Mutual Community General Insurance Proprietary limited, Westcourt General Insurance Broker Pty Ltd., CGU-VACC Insurance Ltd., CGU Insurance Australia Limited, Insurance Manufacturers Of Australia Pty Limited, WFI Insurance Limited, Equity Insurance Group, SGIO, State Insurance, AMI Insurance, SGIC, NZI, CGU Insurance, Pt. Asuransi Parolamas, ERS DGB Limited, IAG International Pty Limited, Accident & Health International Underwriting Pty Ltd.,IAG Re Labuan (L) Berhad, Royal & SunAlliance (Thailand) Limited, Belves Investment Limited,WFI Dormant Pty Ltd. On the other hand some of their unrelated constraints are Iag & Nrma Superannuation Pty Limited,China Automobile Association, Strata Unit Underwriting Agency Pty Ltd., IAG Asset Management Ltd., Beijing Continental Automobile Association Ltd., Logan Consultants Limited, Photosecure (NZ) Limited, Sitrof Australia Limited.

Conclusion

After considering the above facts, it can be said that strategic evaluation is the tool which help in determining the future strategies of the company and also provide guidance to the company to conduct its operations in future. There are number of factors which affect the operations of the business directly, and these factors are comprised into two parts that are internal factors and external factors. It is necessary for the company to evaluate all these factors for the purpose of ensuring effective strategic plans and decisions. IAG is considered as the strong company in the world of insurance group and this company holds number of competitive advantages. Strong market base is the first and most important competitive advantage which is possessed by the organization over its competitors and this advantage helps the organization in building strong relationship with the customers. Strong and respected subsidiaries are also considered as biggest competitive advantage of this group.

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