A Central Value

From improving road infrastructure to mitigating the impact of extreme weather events, an Australian insurance provider is committed to doing more than paying claims, writes Ellie Cooper in this month’s Executive Insight.  

Insurance Australia Group recently ranked 74 in the Global 100 most sustainable corporations, one of only five Australian businesses and the only insurance provider to make the list.

Head of Group Shared Value at IAG, Ramana James, said the success of their initiatives was the result of a commitment to make Australia a safer place.

“Intuitively people would certainly like for insurers to do more than just pay a claim,” James said.

“Insurance is one of those interesting ones where sometimes customers can feel like it’s a grudge purchase.

“What shared value can do is help us have conversations with customers about making their world a safer place, which is our purpose.”

James said that while the term “shared value” was only coined relatively recently, IAG has long focussed on programs that benefit the corporation and customers, as well as wider society.

“There’s organisations that have been undertaking shared value – win-win initiatives – for some time,” he said.

“And even at IAG we have a history of working on trying to help communities manage risk, and if they do that well that means there would be less claims made and a business benefit for us.”

IAG has a dedicated vehicle and road safety research centre, started more than 20 years ago when car theft was skyrocketing in Sydney, which pioneered the company’s shared value approach.

“Motor insurance, whether that be Compulsory Third  Party or vehicle insurance, makes up a significant part of our business,” James said.

“It also makes up a significant amount of our costs, so it will be millions of dollars a year that we pay out if there are accidents or thefts on claim.

“There’s a clear economic cost, there’s a clear social cost, but then there’s a very clear business benefit for us from reducing the claims costs.”

Through the centre, IAG created Australia’s first anti-theft rating system and became a founding member of the National Motor Vehicle Theft Reduction Council.

James said that since the research centre was created, IAG has refined its approach to shared value.

“To actually strategically focus on it, to call it shared value, has been in the last 18 months to two years,” James said.

“Our executive and board agreed we should have shared value linked into our organisational strategy, and agreed there should be a centralised function called Group Shared Value, which would create a shared value approach for the whole organisation across all of its operations.

“[They] realised that with an evolving world, with increased and varied types of competition… if we could apply shared value thinking and activities and programs then it would support us to be commercially successful in the long term.

“So I think definitely it’s a recognition that tackling social issues in a way that’s strategic and part of a business case can help our organisation be commercially successful.”

James said the shared value team, which he heads, is involved with the operations of all departments within the company.

“We’ve had a big focus on embedding it, so as well as building a framework which defines the things that we think are important – so we want to make communities that are safer, stronger and more confident,” he said.

“We have actually had our shared value team in the group strategy team, so we have been very much linked to the decision making of the organisation, not on the side or the periphery.”

The research centre is now focussing on road safety and improving infrastructure in locations notorious for accidents, including the entrance ramp of the M4 at Silverwater in Sydney.

“By raising that as a hotspot and being able to talk to state government, the road authorities and the operator of the M4, we were able to help change the design of that entrance ramp,” James said.

“That has seen the number of collisions reduced by about 300 per year, and if you then translate that into… the claims costs that are likely to accrue because of 300 less accidents a year [that’s] about $600,000 in claims costs savings per year, and that’s just looking at a single spot.

“If you think about doing that across the country at major crash zones you start to see how potentially you could have not just a good social impact, but also a very clear commercial impact as well.”

James said the research centre is also investigating ways to influence driver behaviour in dangerous areas.

“The way we’re taking that further is not just thinking about the hardware, not just the entrance ramp and how you design it, but what about the people that are driving the cars in that area,” he said.

“And so [we’re] looking at how could we create some warning signs through GPS systems that wouldn’t distract drivers, but would let them know they’re coming up to an accident hotspot, so they are more alert and more aware.

“So you start combining human-centred design in the way consumers and people in the community think and behave when they’re driving with the physical infrastructure as well.”

James said one of the fundamental aspects of IAG’s shared value initiatives is that the reach goes beyond just the customer base.

“We insure a lot of vehicles and homes and commercial properties against major weather events and natural perils,” he said

“If you add on top of that the impacts of climate change and the potential to perhaps increase the severity of some of those events, then that can increase the claims cost impact for us.

“So we have a natural perils research team, which researches things like floods and cyclones, to help us understand what the risks are, building maps that help us track and understand it.”

IAG works with governments, other corporations and Not for Profits to help manage and respond to some of the risk of extreme weather events.

The company is a founding member of the Australian Business Roundtable for Disaster Resilience & Safer Communities with Westpac, Investa, Optus, Munich Re and the Australian Red Cross.

The roundtable has helped develop guidelines that inform infrastructure development, and the findings from their research have fed into government productivity commission inquiries.

“Natural perils are a big social issue, they have loss of life, significant psychological impacts, they cost our economy upwards of $6.3 billion a year,” James said.

“The way we typically do it is go in after the event and spend a lot of time in the mop-up and recovery.

“If you spent some more money upfront in prevention, that you could avoid significant amounts of costs over time.

“For every dollar you spend in disaster mitigation on things like improved infrastructure, awareness and education so that people are better prepared, you’d save about $10 in the money you spend to go and do the mop-up and the recovery after something big has happened.

“If we can help rethink that, help communities and other corporations and governments to think about how we better tackle that, we can help save lives, a significant amount of money for the economy, but actually for our business.”

IAG has also partnered with the SES in NSW, Queensland and the ACT, to improve storm awareness and preparation.

“Not only do the SES help when people have a tree fall on their car, or are stuck in floodwaters, they also do a lot of work in trying to communicate with communities to be better prepared, to not drive their car through floods, to tie down their furniture so that they don’t get picked up in strong winds and smash their house,” James said.

“We’ve worked to support them with funding, with knowledge and expertise, and connection to our communications teams and PR to build awareness.”

IAG and the SES ran a joint campaign last year to build awareness and change behaviour around storm preparation in NSW.

“Before the campaign 21 per cent had a plan in place for a storm, post the campaign it rose to 29 per cent,” James said.

“Translate that 8 per cent to a number of people, in the thousands if you’re thinking across the state, who are now actually better preparing themselves.”

James said that to successfully embed shared value in the company, all employees need to be provided with education and incentives.

IAG runs shared value 101 workshops, as well as integrating a shared value module into leadership development programs.

“We’ve worked a lot on how to we build training and capability and develop people so they actually understand what shared value is, so that they how they might be able to think about it and apply it in their own roles,” he said.

From there, James said it’s important to encourage people in the organisation to become involved in shared value by working into the company’s performance scorecard.

“The scorecards which has KPIs for the whole organisation, decide on how well our group performance has gone, and it includes non-financial metrics… on helping to make communities safer, stronger and more confident,” he said.

“So that then links into the way people are rewarded, the bonuses that they get for example, so that’s been a really important piece.”

As many corporations who are committed to shared value or CSR attest to, measurement remains an ongoing challenge.

“How do you ensure you’re measuring the right types of things, that you’re measuring outcomes rather than inputs, that you’re demonstrating the value you create – both the social value, making sure that’s really clear, but also the business value?” James said.

“What’s the commercial value and how can you measure and report that internally so you can build momentum and support for your work?”

James said IAG was in the process of creating measurement tools to map the impact of their work.

“We’ve been identifying the social and business outcomes we’re looking to achieve, and then what are the key results or indicators that tells us we’re on track for that,” he said.

“We’re building an online measurement tool which enables us to capture and measure the impacts of the key programs and partnerships we run, and aligning that to the framework.

“We’re combing the impacts of our partnerships and programs with measuring things like how well we’re doing at an organisational level, and how we’re going with external indicators or metrics like the Dow Jones Sustainability Index.”