IAG on track to save $30m after buyout

MARTA STEEMAN
Last updated 05:00 28/02/2014

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IAG New Zealand expects to achieve $30 million of savings from buying AMI by the end of the financial year.

"We're on track" chief executive Jacki Johnson said.

However IAG had had to spend money at AMI as well, she said.

Not a lot of money had been spent in 10 years at the Canterbury insurance company, she said.

AMI had to be bailed out by the Government in 2011 and was later sold to IAG, which bought the business and customers but the earthquake liabilities went to Government claims manager, Southern Response, to sort out.

IAG had had to move staff around the country because AMI buildings were not earthquake proof, Johnson said.

Some of the $30m of savings came from reinsurance because IAG had strong buying power when its risks were spread across several geographic locations.

Some of it came in having fewer premises, she said.

"A lot of savings did not come out of a lot of people coming out of the business."

The move to "sum insured" for house insurance did not have as much impact on premiums last year as might have been expected.

Sum insured is the amount customers decide to insure their home for and limits the insurance company's obligation to that amount.

Johnson said the shift to sum insured, from replacement insurance, probably accounted for about 4 per cent increase in its gross written premiums.

The percentage of customers increasing the default sum insured nominated by IAG differed across New Zealand.

"I think there is about 20 per cent who are actually going for a higher number," Johnson said.

Customers on complex building sites and complex structures were using surveyors to establish a rebuild cost.

Johnson admitted IAG did not have a lot of information about properties before issuing its nominated sum insured to customers.

"One of the difficulties that we had is we have very limited information on our files about size and location of the houses. We found that in Christchurch."

IAG has a calculator on its website where a customer can estimate the cost of rebuilding their home. That does not take into account whether a property was technical category 1,2 or 3 in Christchurch, which affects the type of foundation required for a rebuild and the cost of that.

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- BusinessDay.co.nz

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