Pride and positivity

IAG’s new boss is proud of the way his team and the industry responded to last year’s challenges. And he’s upbeat about the future

By John Deex

Nick Hawkins took over from Peter Harmer as Managing Director and Chief Executive of IAG in November, just in time to deal with the fallout from the hard market, declining profits, the pandemic and its associated challenges.

The long-serving IAG executive – he was chief financial officer for 12 years before being named deputy chief executive in April last year – was tagged by Chairman Elizabeth Bryan as having “a deep understanding of both global and domestic general insurance along with operational and financial experience”.

His first few months in the job have been particularly testing for 52-year-old Mr Hawkins, with IAG recording a $460 million net loss for the six months to December 31, a turnaround from the $283 million profit for the previous corresponding period.

However, insurance profit increased more than 33% to $667 million, thanks mainly to the present hard market.

The main cause of IAG’s financial hiccup is the need to include a contingency worth an estimated $865 million following the industry’s failure to convince the NSW Court of Appeal to disallow pandemic-related business interruption claims on policies that referenced the outdated Quarantine Act.

About half of IAG’s 76,000 business interruption policies refer to the old legislation, which was replaced by the Biosecurity Act 2015.

John Deex: Looking first at the wider economy you’re operating in, what are the biggest challenges for the insurance industry?

Nick Hawkins: The past year has presented some of the most challenging events some of us had to face in our lifetimes. The heartbreak and scale of the Black Summer bushfires is something we hope we won’t have to experience again.

As we were helping bushfire victims with their recovery, our customers were then hit by floods and severe hailstorms. And within weeks, the nation was dealing with the shock of the COVID-19 pandemic and the consequences we’ve all experienced since then.

The constant for me through these events was the focus and dedication of our people in doing everything they could to support our customers.

From our specialist teams basing themselves in the worst impacted bushfire zones, to the support measures we put in place for our customers struggling during COVID-19, we’ve done everything we can to be there for our customers during these crises.

We know people continue to value insurance and the security it provides, and we’ll continue to support our customers, in their recovery from this pandemic.

How long do you see it taking for the national economy to recover?

I’m optimistic about the Australian economy. The federal and state governments’ stimulus packages and action by the Reserve Bank have played an important role in supporting the economy, especially Australian small-to-medium businesses.

I think we will continue to see key economic indicators move in a positive direction.

Challenging start: Nick Hawkins

Tied to that is the hard insurance market, which is becoming a bigger issue for SME businesses in particular. When can we expect rates to start softening, and what should the industry be doing to help businesses facing an affordability crisis?

Supporting small businesses has been a key part of our customer support measures. Over the last year we’ve also increased our focus on these measures for customers experiencing financial hardship and this is now part of our everyday approach.

This includes a number of actions outlined in our Financial Inclusion Action Plan, which we released last year.

You have split the former Australia division into direct and intermediated segments. What led to that decision and what benefits do you expect?

I wanted to put in place an operating model with our Australian business that will provide greater clarity on roles and responsibilities and is more aligned to IAG’s brands and customer propositions.

Simplifying how we operate means that we can help our customers better. What we want to do is build a stronger and more resilient IAG – and this includes a sharpened focus on our intermediary businesses and our brokers.

You’ve highlighted growth of the intermediated sector as a key target for IAG. How will you achieve this and what can IAG do to enhance its broker relationships?

On my first day as Chief Executive I established a dedicated Intermediated Insurance business. It will focus on the needs of our brokers and partners who play such an important advisory role for our customers by providing specific advice to their clients, to ensure their assets and businesses are protected.

For several years the broker industry has been adapting and becoming more digitally connected, and this has accelerated through the pandemic.

Our focus on innovating and digitising the customer experience will help to support our broker partners as they continue to adapt to this digital world.

It’s also important that we continue to demonstrate value for money, quality customer service and develop product offerings to support our broker partners. This will be enhanced through our Intermediated business which will focus on what our broker partners need.

How do you feel IAG has negotiated the COVID-19 pandemic? What lasting impact has it had on customer support, use of technology and staff working arrangements? How has it affected you and your managers?

Like most organisations, we’ve continued to review the way we work throughout the pandemic to ensure the safety and wellbeing of our customers, employees, partners and suppliers.

This has involved making adjustments to our business operations to ensure we minimise any potential risks based on the latest information and advice from government and health authorities.

At the height of the pandemic, 98% of our people were working from home. Since then we’ve provided the option to come into the office, work from a nearby IAG hub or work from home, and they continue to be accessible via email and over the phone for our customers, partners and suppliers that need our support during this time.

“The science is clear that in a warmer climate severe weather events such as bushfires, tropical cyclones and storms will become more frequent and more destructive.”

The pandemic has also meant an adjustment in how we support our customers. In addition to the range of support measures for our customers experiencing financial hardship, we also used the latest technology to support our customers with their claims.

Where possible our claims assessing processes have been revised to allow desktop and digital assessments to minimise face-to-face interaction – for example, by using a live video assessment. This has been designed to minimise face-to-face interaction for customers who have made claims. Our assessors will contact customers to arrange virtual assessments.

If we need to allocate a builder or supplier, or arrange for a claim assessment, we will ask screening questions regarding travel and health to ensure the safety of everyone involved.

Our assessors also use appropriate personal protective equipment and follow the appropriate health and safety advice from authorities.

The business interruption wordings issue remains unresolved to this point. Do you think the issue might have damaged the industry’s reputation as a fair dealer?

Assuming that we did not exclude a pandemic and therefore our policies respond, how do they respond? Our wording wasn’t put together to contemplate a pandemic scenario because we thought we’d excluded it.

So therefore the second test case is really about creating those “guardrails” at industry level as to how our policies would respond assuming a pandemic exclusion doesn’t occur.

What’s really important here is the way the industry addresses this with speed and brings the issues to a head as quickly as possible through the courts so we have clarity on whether or not the exclusion applies, and secondly, the guardrails on how our policies respond to different scenarios.

Do you see affordability issues increasing, particularly in the north, as climate change affects the frequency and severity of natural catastrophes?

We know communities in northern Australia bear the brunt of the nation’s risk of extreme weather, such as cyclones and floods, so we have undertaken significant research in this area to help inform all our stakeholders and to help protect these communities.

We have long advocated that a nationally co-ordinated and well-resourced disaster resilience program, including greater investment in mitigation, that reduces the impact of extreme weather events, is critical and can help to support insurance affordability and availability.

We speak with all levels of government to help protect communities from the risks they face, including the impacts of climate change.

Our Natural Perils team has been involved in a number of research projects that explore the future impacts of climate change on our communities – including the release of two editions of the Severe Weather in a Changing Climate Report developed in partnership with the National Center for Atmospheric Research in the US.

The report shows that extreme tropical cyclones, storms, hail, floods and bushfires are becoming more frequent and intense in a warmer world – and the increase in global temperatures to date is already influencing these events and impacting communities now.

This is why we need to work together to mitigate these events and ensure we are prepared.

Do you think governments are doing enough to mitigate the increasing risk? Should more be done to reduce carbon emissions? Do you think market intervention is required in the form of a reinsurance pool or similar, in order to alleviate the immediate problem?

We believe everybody needs to take responsibility for climate change, and it’s critical that all levels of government work with our communities, [non-government organisations] and businesses to minimise the impact.

As an insurer we see the impacts of a changing climate on communities firsthand. We talk regularly with all levels of government on a wide range of issues, particularly the impacts of extreme weather events and disasters on communities, and what we can do to mitigate the financial and social impacts of disasters.

“Personally, I found remote working to be a positive experience, and I want to continue working this way in the future.”

And I believe we’re making a difference on climate action. We’re really proud of the work we do through our NRMA Insurance brand in the community to help people understand how they can make their homes safer and protect themselves from risk.

We also have our own climate action plan, with specific actions we as a business are taking on climate change.

We’ve been carbon-neutral since 2012 and have reduced our carbon emissions by almost 25% since 2015. We also have a commitment to reducing the overall emissions contained in our portfolio to be aligned with the Paris Agreement.

Additionally, our most recent FY20 Climate Action Plan Scorecard released at the end of last year outlines a new commitment to deliver net zero investment portfolio emissions by 2050.

IAG has been the industry leader in promoting programs related to climate change. Do you see an intensification of this approach, and what should the wider industry be doing to deal with climate change impacts?

The science is clear that in a warmer climate severe weather events such as bushfires, tropical cyclones and storms will become more frequent and more destructive. This is a challenge for all of us.

For more than two decades we’ve worked with other insurers, scientific and academic institutions, community organisations and governments on a number of projects to understand the impacts of climate change and what we can do to mitigate these impacts.

Over the last year we’ve seen a change in the national dialogue on climate change, brought about by the terrible Black Summer bushfires, and we welcomed governments’ quick response in calling a royal commission and other inquiries into that catastrophic event.

We can do better as a nation to mitigate the impacts of natural disasters and we support the Government and various stakeholders in doing everything we can to protect the nation’s communities from the impacts of climate change.

Can the industry cope with the volume of regulatory change slated for the coming years? Do you have any concerns about any particular reforms?

Broadly speaking, we support any reform that is going to ensure better, fairer outcomes for customers.

There is a big regulatory reform agenda underway and we’re really well placed with it.

What I would say is that we’re always advocating for reform that is done in partnership with government, regulators and consumers groups.

This sort of collaborative approach is more efficient because it avoids any unintended consequences. Putting in place a more streamlined transition process would also ensure there’s no duplication or overlap in obligations and sets a clearer path to compliance.

You’ve been working at the top level of IAG for a long time. What’s your personal view on the developments of the past year like the pandemic, and how can companies inspire their employees to seize any new approaches and opportunities?

COVID-19 has made us re-think what work looks like. We know the majority of our people have really enjoyed the flexibility of working from home but have missed the face-to-face interactions and social contact.

What we are moving to is a hybrid way of working which will give our people the best of both worlds.

Personally, I found remote working to be a positive experience, and I want to continue working this way in the future.

One of the things that surprised us about working in a less-centralised way is the sense of inclusiveness it fostered, and this will really help us adapt to our next new way of working.