OUR APPROACH

It is important to recognise that there is an interdependency between each of the dimensions of customer, workforce, community and environment and our economic sustainability. By strengthening our relationships with our customers we are able to grow our business; by retaining our workforce we can reduce the costs of turnover and recruitment; by working with the community we can reduce risks and minimise the need for customers to make a claim; and reducing our environmental footprint requires us to decrease our consumption of resources and hence our cost base. Thus, effective management of all these levers leads to enhanced economic viability and sustainability.

In July 2008 we refined our corporate strategy and set clear priorities to rebuild and sustain our profitability. As we move into FY10 we remain focused on:
• improving our performance in our home markets of Australia and New Zealand;
• pursuing selective general insurance growth options; and
• driving operational performance and accountability.

A summary of IAG's 2009 economic performance is reported in the our performance section of this website.

More detailed information and commentary about our financial performance is included in the 2009 Annual review and 2009 financial statements.

Our customers include individuals, businesses, governments and non government organisations. We sell insurance products directly through our branches, franchises, country service centres, call centres and the internet, and also distribute products via intermediaries such as insurance brokers, authorised representatives and business partners.

To ensure that IAG remains a sustainable business, we must continue to be relevant in our chosen markets and adapt to the changing needs of our customers and intermediaries. The attraction and retention of customers through the delivery of superior experiences is a group wide strategic priority.

IAG has implemented a devolved operating model, bringing our businesses closer to the customers that they serve. By aligning our businesses and customers in this way, we are better able to deliver superior experiences and performance.

Remaining relevant to our customers means offering products that our customers want and need in a timely, efficient and flexible manner. It's about getting to know our customers and understanding that people have different needs depending on their circumstances. That's why we continue to invest in developing customer insight through innovative segmentation techniques, targeted customer value propositions and distinctive products and services.

To obtain that detailed level of understanding about what products our customers need and to ensure that we provide the best level of customer service possible, we regularly undertake specific activities to engage and seek specific feedback on what we are doing and how we do it. In addition to customer satisfaction surveys, we regularly engage with our customers in different ways. The type of engagement depends on the customer. For example:

Direct customers

• customer satisfaction surveys;
• contact with customers when they take out/renew a policy, or make a claim;
• focus groups; and
• complaints management processes.

Intermediaries

• dedicated managers that facilitate on-going dialogue with our intermediaries through account management models which differ by channel; and
• a tailored intermediary survey.

Workers Compensation business

• through our workers' compensation businesses, we also build relationships with injured workers and their employers facilitating two way engagement.

We also engage with our customers and communities through the internet. Ideas generated from the website myinsuranceideas.com.au, our online insurance community, contributed to the creation of our new online insurance business, The Buzz.

There are many different products and services that IAG offers to help our customers make informed decisions about the right product for them. We strive to give our customers clear and easy to understand information and provide policy documents and product disclosure statements that are worded as simply as possible. The nature of our business also requires us to obtain a significant amount of information about our policy holders lives and we have strict and legally compliant policies and systems in place to ensure that this information remains protected.

A summary of IAG's 2009 customer performance is reported in the our performance section of this website.

We have approximately 13,500 employees across our operations and they form the backbone of our business and are the face of our brands. Therefore workforce sustainability is a strategic priority for IAG and we have a clear strategy to:
• attract and retain the right people;
• assess and grow our human capital; and
• build a resilient, engaged and high performing workforce.

To help us attract and retain employees, we offer our people workplace options which are flexible enough to meet their needs and changing circumstances. Part time employment, flexible hours, compressed working weeks, job sharing arrangements and working from home options where appropriate are all available. Supporting our people over the length of their career, and at important times in their life, is also crucial. This is why we offer paid parental leave options, carers' leave, shorter working year and study leave options.

Assessing and growing human capital means investing in talent development and ensuring succession plans are in place for key roles. It's about developing our employees to reach their full potential so that they can be future leaders of our business. We do this by offering training programs, supporting extra curricular training and education and providing financial and leave support for those pursuing tertiary education and professional qualifications. In line with this strategy we have launched a revised approach to group level talent and succession management, through the Talent and Succession Pathway. This aims to enhance management and leadership capability through structured identification and assessment processes resulting in targeted development plans for our high performing—high potential employees, with the aim of growing individual and collective leadership capability.

Building a resilient, engaged and high performing workforce is our ultimate objective. The performance of our people has a direct impact on the performance of our business and understanding that link we actively manage it. Culture can be a critical enabler or inhibitor of execution. We look to foster a culture that promotes and rewards high performance in line with our values of respect, integrity, performance and a considered sense of urgency. These values emphasise the need to deliver timely performance while maintaining a positive work environment.

Employee engagement is also driven through an open and honest dialogue with our employees. We engage through both formal and informal channels including team, senior manager and divisional meetings, an annual engagement survey, employee focus groups, email bulletins and regular performance feedback and career planning sessions. Employees are able to report any issues affecting the quality of our workplace through a number of channels. This includes talking to their direct manager, using a dedicated help line for issues including discrimination, recruitment and staff development, or using our intranet mailbox for reporting and managing compliance incidents.

The safety of our employees is paramount. Each employee has a responsibility for their own safety and others around them. This responsibility is supported by an integrated occupational Health and Safety program that operates across the business, providing training for all employees with a detailed monitoring and reporting framework that tracks our progress.

Our Charter for health, safety & security identifies both our legal compliance and our beyond compliance undertakings to promote health, safety and security for our staff, contractors and other suppliers, and our support to help our customers and members of the wider community to reduce risks in their lives.

Charter for health, safety & security (150kb .pdf)

A summary of IAG's 2009 workforce performance is reported in the our performance section of this website.

Insurance is the ultimate community product as it relies on sharing risk across the community. As an insurer, it makes good business sense for us to focus on reducing risk in the community. Fewer risks mean that our customers and communities can reduce the hardship of unexpected loss and get on with life. It also means fewer losses and claims. This in turn contributes to the longer term affordability of insurance and the sustainability of IAG.

Our commitment to our customers and the community is most visible in the way we help community in times of emergency and the role we play in supporting communities rebuild and reduce their risk so they are better able to withstand catastrophic events in the future. For example, in addition to the support we provided our customers in the aftermath of the Victorian bushfires, we also lodged submissions with the 2009 Victorian Bushfires Royal Commission to highlight a range of measures to help communities become more resilient.

Beyond the point of sale or claim, we have ongoing partnerships with community organisations, sharing information, and influencing issues of importance.

Our areas of focus align closely to the products and services that we provide. As a large motor vehicle insurer, we are involved in the communication of road risk and safety information, and partner with a number of community organisations that promote safe driving practices to reduce the number of accidents on the road, or assist people that are injured in accidents. Such partnerships include NRMA CareFlight in New South Wales, Essex Bike Safe in the UK and Kidsafe's road safety initiatives.

Equally, as a large home and content's insurer, we see it as a priority to work with our customers and their communities to make their homes as safe and resilient as possible. That's why we have continued with our Queensland Fire and Rescue Service Partnership. Other community programs that we support target crime prevention, emergency services, workplace safety and adaptation to a world in which severe weather events are likely to increase. An example of the latter is our ongoing partnership with Conservation Volunteers Australia.

We have a long and proud history of supporting a large range of community programs, partners and activities and understand the mutual value that such programs achieve.

We also recognise that as a large organisation, we are in a position to influence and work with government. Therefore, we have proactively entered the debate on a number of issues that our stakeholders considered important. For example, over the past year we have been working with government and the Insurance Council of Australia to highlight the impacts of taxation on insurance, including the issues of inequity and non insurance.

IAG is committed to supporting our people's desire to contribute and support their own communities. Our employees have one day of paid volunteering leave per year to participate or contribute to their local community, and they can nominate a community group that works to reduce risk to receive a grant of up to $5,000 as part of our Community Grants program. IAG also runs a workplace giving program and for selected charities matches the contribution of its employees dollar for dollar.

Our suppliers are a key part of our community and we are committed to working with them to help make their businesses sustainable. Due to the wide variety of our suppliers, there is no one size fits all approach to our interaction with them—it will be dependent on the individual supplier. What is common is that our supplier selection processes are governed by our supplier selection guidelines, and ongoing interaction with them is governed by our values and ethics. These guidelines reflect IAG's commitment to procuring products and services in ways that are socially responsible, meet the community's expectations of us as a good corporate citizen and reflect our values.

Supplier selection guidelines (19kb .pdf)

A summary of IAG's 2009 community performance is reported in the our performance section of this website.

The environmental risk that we find ourselves faced with is well documented. Climate change is a significant risk for IAG as a company and the community at large. The volatile weather patterns globally and the increase in natural perils cause us and our communities significant hardship. Managing the impact of the environment on our business and reducing our own environmental footprint are important parts to mitigating and adapting to this risk.

IAG must also meet any regulatory requirements, and while we will not be captured by the Carbon Pollution Reduction Scheme, the size of our emissions means that we may be captured by the National Greenhouse and Energy Reporting (NGER) Act in FY2011. Our ongoing reporting of our environmental footprint means we are well positioned to meet these potential obligations. For more information on NGER refer to www.climatechange.gov.au/reporting.

We have been active in driving awareness of the potential impacts of climate change and recognise that it is time to move our focus from advocacy to definitive action through adaptation and mitigation strategies.

Minimising our own impact on the environment is critical. In 2006 IAG announced its intention to become carbon neutral across its global operations by 2012. Since the announcement of this target, we have adopted a strategy that has focused on changing behaviours within the organisation to reduce the carbon emitted from the consumption of resources. Whilst our footprint can be reduced, it cannot be eliminated entirely, necessitating the eventual need to purchase carbon offsets to neutralise our remaining carbon impact.

The drive to reduce consumption of carbon emitting resources is managed through divisional carbon dioxide equivalent (CO²e) emissions reduction targets. This allows each of our divisions to identify the areas of greatest impact and influence and focus consumption reduction efforts on those resources accordingly. CO²e emissions are the most significant performance indicator as they provide a snap shot of our overall environmental impact and so we use a series of key environmental indicators including paper use, fuel use, air kilometres travelled and electricity consumed to calculate our CO²e emissions.

Going forward, our Australian, New Zealand and UK operations will be measured for their progress against a target of 5% year on year reduction to 2012 based on 2009 results. Previously, only our Australian and New Zealand businesses had targets so the addition of the UK business targets is a positive step. Furthermore, our Asian businesses have committed to establishing a baseline footprint in FY2010 which will then enable targets to be set for FY2011.

As part of our ongoing commitment to transparently track, monitor and report CO²e emissions, we submit our data annually to the Carbon Disclosure Project (CDP). The CDP's mission is to collect and distribute high quality information that motivates investors, corporations and governments to take action to prevent climate change. Through their annual request for information, the CDP plays a key role in encouraging private and public sector organisations to measure, manage and reduce emissions and climate change impacts.

We also have a responsibility to help our customers and the community to minimise their environmental impacts. As such we offer a range of products and services to help guide their behaviour in environmentally sustainable ways. These include insurance products and services such as:
• fuel efficiency savings—discounts on hybrid and fuel efficient vehicles, offered to NRMA Insurance customers in Australia and NZI customers in New Zealand;
• climate help—an online tool that allows Australian customers to offset the greenhouse emissions associated with using their car; and
• green whitegoods profiler—an online tool that helps customers understand which whitegoods will be best for their needs and the planet.

IAG has been a strong advocate on the need for immediate action on climate change, to both minimise its impact and to help the community become more resilient to natural perils. If we help reduce the risk of climate change we can reduce the number of claims. If we keep claims costs down we can also keep premiums affordable. New products such as flood insurance help our customers deal with increasing rates of natural perils, along with grass roots education supported through the NRMA Insurance Community Grants Program.

We will continue to work with our customers, employees and other stakeholders to raise awareness about climate change and how we can all reduce the risk of its impacts. We are a signatory to the United Nations Environment Program's Finance Initiative and a member of the World Business Council for Sustainable Development, both of which commit us to providing environmental commitment and stewardship.

Environmental commitment (73kb .pdf)

A summary of IAG's 2009 community investment and involvement is reported in the our performance section of this website.

We also track and monitor weather volatility and loss damages and leverage this data to inform our risk pricing. This is discussed in the key risks and opportunities section of the website.

By engaging with our stakeholders on a regular basis, we aim to understand issues and emerging trends and what our stakeholders expect from us. This engagement helps us achieve our objective to be a sustainable business and build these considerations into strategic and operational decisions.

IAG has a large group of stakeholders and so the continuous monitoring of and engagement with key stakeholders is a critical process that continues on an ongoing basis. Our stakeholders include the people, organisations and other entities to whom we have a responsibility, as well as those that we can influence or are dependent on us. We recognise that this works both ways; our stakeholders are also those that can influence us, or those who have a responsibility to us. We respond to our stakeholders not only through our Business Sustainability report, but through different mediums throughout the year as appropriate.

Details of our engagement with customers, employees and the communities are included within the customer, workforce and community sections of this website. There are also a number of other key stakeholders that IAG engages with on a regular basis;

Shareholders

We have a large number of retail shareholders as well as preference shareholders and institutional investors. We are keen to encourage dialogue with all shareholders, whether they are retail or institutional shareholders.

Interaction with our shareholders will vary depending on the type of shareholder:
• information is provided through regular announcements to the ASX (which are also posted on our website);
• media to communicate results since we have a large shareholder base;
• formal communication takes place through our half year and full year reports, as well as the Annual General Meeting which shareholders are encouraged to attend and where they cannot attend in person the meeting is webcast, with archive copy available on the website;
• a shareholder centre on our website that provides up to date and relevant information;
• a dedicated shareholder information line and Computershare Investor Services continue to manage our share registry functions;
• engagement with our institutional shareholders is managed by our dedicated investor relations team;
• twice a year the Investor Relations team and the CEO and CFO undertake investor presentations and complete the biannual roadshow which includes one on ones with institutional investors so they have an opportunity to ask questions;
• one on one meetings are held throughout the year with our institutional investors; and they are also invited to attend an annual strategy day (where the IAG strategy is explained).

Government and regulators

We strive to maintain open and cooperative relationships with the governments and regulatory stakeholders of the countries in which we operate. There is the corporate regulatory regime that applies to Australian incorporated businesses generally, as well as a range of industry specific regulations at Federal, State and Territory levels that need to be managed. These regulations cover prudential supervision, market conduct and consumer protection requirements.

We have dedicated teams across our business that engage in a variety of ways including making submissions, drafting positions on public policy issues, attending meetings and industry conferences and ongoing liaison through industry groups.

In Australia we are in continual dialogue with:
• the Federal and State Governments;
• federal regulators such as Australian Securities and Investments Commission (ASIC), Australian Prudential Regulation Authority (APRA) and Australian Competition and Consumer Commission (ACCC);
• statutory scheme regulators such as WorkCover Authority and relevant motor vehicle third party liability regulators; and
• industry associations such as the Insurance Council of Australia (ICA).

In New Zealand, our contact is with the national government, as well as the New Zealand Securities Commission and the Commerce Commission and the Ministry of Economic Development.

In Asia, IAG has built relationships with regulators in our areas of operation; these include the Ministry of Finance, Office of the Insurance Commission (Thailand), Bank Negara (Malaysia), Monetary Authority of Singapore (Singapore) and China Insurance Regulatory Commission (China).

In the United Kingdom IAG engages with the Financial Services Authority and Lloyd's of London (as a market regulator).

All public government submissions are available on the IAG website.

Suppliers

The nature of our business requires us to have a large network of suppliers across many areas whether that be a smash repairer, doctor or whitegoods provider. Our suppliers are viewed as an extension of us, therefore we look to engage with suppliers that share our values and approach. This process is governed through IAG's supplier selection guidelines.

Supplier selection guidelines (19kb .pdf)

Engagement varies depending on the size and type of supplier and includes the following types of activities:
• quarterly performance report feedback;
• monthly KPI meetings;
• sustainability reporting queries/feedback;
• adhoc queries—day to day issues; and
• contract renegotiation.

Business organisations and industry bodies

Participation and involvement is encouraged where relevant for the Group. For example we are actively involved with the Insurance Council of Australia, the World Business Council for Sustainable Development and Geneva Association.

Our employees and the business as a whole are involved in a number of business organisations and industry groups. Where relevant and appropriate, we encourage our people to take part in public debate on areas of relevance to our core business. Our managers regularly speak at seminars, conferences and public hearings.

Unions

Our consultation process with the Finance Sector Union (FSU) is detailed in the IAG Enterprise Agreement 2003 (Agreement). Under the Agreement, we consult with the FSU regarding workplace change programs impacting on employees, when positions are being made redundant and/or employees are being retrenched. FSU representatives are invited to address new recruits at our induction programs. In accordance with the Agreement's grievance procedure, they are recognised as an employee representative.

This process is similar in New Zealand and detailed in the respective union collective employment agreements.