Annual report quotes departed UK CEO Neil Utley
Insurance Australia Group (IAG) has published it annual report called “Staying the Course”, including a quote from departed UK CEO Neil Utley but describing its UK performance as “disappointing”.
Ultey said: “We took a decision to strengthen significantly Equity Red Star’s claim reserves during the year, mainly in response to the increase in bodily injury claims.
“Conditions have been challenging across the UK motor industry for some time, however, the scope of this issue was much greater than originally anticipated and I am extremely disappointed with its effect on our financial result.
"Our actions have now addressed the issue, and we believe our remediation plan will begin to restore Equity Red Star’s profitability.”
The Annual reports said: “Our UK business, Equity red Star, reported a substantial loss owing to the actions we took to strengthen our claim reserves and provide additional reinsurance cover. The associated one-off charge of $367 million reduced the Group’s insurance margin by around 4%.
“The driver of this disappointing outcome was an increase in bodily injury claims, an issue confronting the UK motor insurance industry, the scope of which was greater than originally anticipated.
“The number of injured parties per accident has risen notably, as has the average size of each claim, primarily driven by the ‘claim farming’ activities of accident lawyers, leading to significant claims inflation.
“We are undertaking a range of actions to strengthen our UK business, including further rate increases, exiting certain unprofitable broker relationships, ceasing to write external aggregator-sourced business of a non-bike nature, and enhancing underwriting and claim practices.
“While this is a challenging time for the UK motor insurance industry as a whole, we remain confident that Equity red Star is capable of delivering attractive returns for IAG over the longer term.
“Our UK fee earning businesses, including Equity Direct and specialist broker Barnett & Barnett, are performing well.
UK sector report
In the section dedicated to the UK market the reports said: “The UK operating environment was extremely challenging during the year. In particular, the cost of bodily injury claims continued to increase. This has been primarily driven by the ‘claim farming’ activities of ‘no win, no fee’ accident lawyers.
“The extent of this issue has been much greater than originally anticipated. As a result, we took a decision to strengthen Equity red Star’s reserves to ensure future claims would be adequately covered, and took out reinsurance protection against further deterioration. The one-off cost of this action led to a substantial loss for the UK division.
“We are undertaking a range of measures to strengthen Equity red Star. These include further rate increases of up to 20% across most classes of business, exiting certain unprofitable broker relationships, ceasing to write external aggregator-sourced business of a non-bike nature, and enhancing underwriting and claim practices.
Fee earning businesses
“The fee earning businesses are continuing to perform well. Equity Direct, our affinity broking business, won a number of significant new partnership deals, including several high profile motor manufacturers, Honda, Kia and Mazda.
“Bike Team, our specialist motorcycle broking operation, continued to build its reputation as a committed supporter of local community causes and is establishing a recognised presence in the market.
“We secured a controlling stake in Insurance Dialogue Limited, a specialist household broker offering tailored products to the over-50s market, and saw our motor breakdown business, Autonational, named as a top three service provider in ‘Which?’ magazine’s latest national car survey.
“While the challenging conditions across the UK insurance industry are expected to continue in 2011, we believe the actions we are taking will assist in restoring Equity red Star’s profitability and maintain its strong niche position in specialist UK motor classes.