To attract the best possible talent, it’s necessary to draw on the widest possible pool of candidates. This is one of the reasons why IAG views diversity in the workplace as a key part of its future success – and why failing to address diversity in the workplace poses a threat to our ongoing sustainability.

While gender diversity is an important facet of diversity, and has dominated debate in this area, IAG’s definition of diversity is broader. We look at diversity in the widest possible definition, looking to build a workforce which is diverse in terms not limited to but including race, age, thought, background, lifestyle, religious belief and attitude.

In addition to the ability to draw on a wider talent pool, IAG sees several other key advantages associated with a diverse workforce:

• Diversity of background leads to diversity of thought, which helps create an environment in which outdated ideas are challenged and innovative work practices are developed;
• We have a diverse customer base across our operating divisions, so a diverse workforce allows our businesses to better relate to the communities they serve; and
• Providing the mechanisms which promote diversity, such as flexible work arrangements that meet both individual and business needs, leads to a more engaged and productive workforce.

As an active portfolio manager, IAG provides frameworks such as the Group Talent Management and Succession program and Group pre-retirement programs, which allow operating businesses to run their own diversity programs that best suit their business needs. For example:

• Direct Insurance runs the Managing Diverse Teams Effectively program, which aims to increase managers' understanding of the variety of needs they may be required to accommodate, including generational, cultural and personality differences. Direct Insurance has also developed its own Diversity Scorecard, that its Executive Team reviews regularly;
• IAG NZ is a Foundation Partner of the Global Women: Women in Leadership initiative, providing executive development and mentoring for talented women aspiring to senior and board roles.  
• IAG NZ is also a financial sponsor and staff volunteer as mentors for the OMEGA Talent for Auckland organisation (www.omega.org.nz) supporting skilled migrants into meaningful employment in the Greater Auckland region. 
• In Thailand, Safety Insurance runs a program to increase staff diversity by ensuring staff represent and come from different regions of the country, which vary in levels of wealth or poverty, and in religious beliefs.

To further embed diversity initiatives across the Group, IAG has formed the IAG Diversity Working Group, tasked with mapping out a Group-wide approach to diversity.

The Working Group is chaired by the Group CEO, and includes the Chairman and a representative from each of IAG’s operating divisions and the Corporate Office. While the Working Group is responsible for diversity policy and philosophy, the application of that policy will be the responsibility of each of the Divisions according to the local environments in which they operate.

A further example of our commitment is our new goal to increase the number of women in senior management positions to one third by 2015 and we will continue to report on our progress in future IAG reports.

In the last financial year, IAG improved underlying operational performance in our core markets of Australia and New Zealand. In Australia, the economy proved resilient to the global downturn, reflecting the strength of the regulatory environment and the banking sector, and as a result of a flexible exchange rate, cuts in interest rates and a sizable fiscal stimulus. The Australian economy is expected to benefit from the proximity and links to the fast growing Asian region, and the IMF predicts a stronger economic outlook for Australia in 2010 and 2011 in comparison to other advanced economies. The insurance industry in Australia also weathered the global financial crisis well. While some deterioration in profitability occurred in recent years, the general insurance industry remained profitable and well capitalised. Insurance industry performance is expected to improve in the next financial year, and IAG is well positioned to deliver further operational and financial improvements in its largest market.

IAG’s New Zealand business delivered a sharp turnaround in FY10 in the context of difficult economic and industry conditions.  New Zealand entered recession in early 2008, before the effects of the global financial crisis set in later that year. New Zealand can expect a modest economic recovery in the years to come, due to high levels of household debt, ongoing challenges in the finance sector and low job creation.  The insurance industry encountered continuing and fundamental change in not only the economic environment, but in the political and regulatory landscape in New Zealand.  Industry conditions are expected to improve in New Zealand, as property and vehicle markets recover and regulatory developments create opportunities. However, rising claims costs due to weather related events and reduced investment income may challenge insurers in New Zealand in the near term.

In the UK, worsening economic and industry conditions had an impact on IAG, and we have taken immediate remedial action to ensure our business limits its exposure to any further claims deterioration in the UK market. The UK economy declined sharply during the global financial crisis; emerging from recession in the final quarter of 2009 after six consecutive quarters of contraction.  The UK’s recovery will be slow, and the IMF forecasts GDP growth of 1.2% in 2010 and 2.1% in 2011. The economic climate exacerbated existing conditions in the UK’s general insurance market, and contributed to deteriorating profitability, pressure on pricing and significant increases in the cost of bodily injury claims.

Although Asia’s export–oriented economies were affected by the global financial crisis, many Asian countries have already experienced economic recovery or are on a fast path to recovery.  China and India in particular are growing strongly, with 2010 GDP forecasts from the IMF of 10.5% for China and 9.4% for India. We made solid progress against our strategy of building a stable of high growth insurance assets in selected Asian markets—Thailand, Malaysia, India and China. IAG’s established Asian businesses—in Thailand and Malaysia—continued to perform soundly, and produced financial results ahead of their respective markets. The operating and insurance outlook is relatively positive in IAG’s Asian markets, notwithstanding the uncertain political conditions in Thailand.  Asia remains an important element of the long term growth aspirations of IAG and we are well placed to benefit from the recovery in the region.

It is therefore important that ongoing changes in weather patterns are anticipated. If the climate changes, our historical claims experiences can no longer be directly applied to our current and future weather risk pricing, particularly the risk of weather extremes. Climate modelling has shown that it may only take a small change in the climate to generate a significant change in extreme weather. Our ability to price risk appropriately is therefore critical, and this could affect the long term sustainability of IAG's business and the availability of insurance to the consumer. We cannot afford to take this issue lightly.

In recent times we have seen a debate played out in the news media about the validity of the climate change science. IAG is quite clear that human induced climate change is a reality as we believe the evidence is overwhelming. Consequently, we have advocated, and continue to advocate, that early action is required to address the likely impacts of the changing climate.

At IAG we are fortunate to have experts within our business that understand in detail the science behind climate change. They are clear that the science of climate change, dating back over a century, remains robust and note that it is hard to refute the fact that today’s climate is changing in a manner as predicted by the IPCC in 1990. This is consistent with the observed increases in greenhouse gases, largely attributable to human activities, which produce a warming of the climate. Using long term temperature measurements, the trend in global air temperatures over the past half century is without doubt upwards, albeit with a natural variability element.

So what does it mean for the insurance industry? We are seeing new extremes in events occurring at an ever increasing rate. Of particular concern is the rate at which things are changing. Therefore it is not only vital but extremely prudent for us to understand and take into account these changing risks.

With this in mind, our Natural Perils Research Team endeavours to build on the weather risk research in which they have already participated, and develop techniques to quantify the effects that we are seeing. The magnitude of the potential impacts means that we must try and stay one step ahead in our understanding, so if research is not available on the particular perspective that we require, we look to undertake the research ourselves. An example of this includes teaming up with Curtin University in an Australian Research Council proposal, to scientifically investigate the influences of climate change and natural variability on severe hail storms in Australia, and we continue to work closely with the Cyclone Testing Station at James Cook University, where we are actively involved in the Station's Management Committee. We also interact with other external researchers to keep track of research findings to ensure we adopt a balanced and scientifically credible approach to this very complex issue. Calling on our internal resources, including our claims assessors, to share first hand their experience of what they are seeing, informs our understanding.

Reinsurance plays a crucial role in our management of weather risk. We purchase reinsurance, the ‘insurance for insurers’, to limit our exposure to the claims that our customers make when a specific event occurs. Reinsurance therefore protects us as a company in the event of large disasters such the Perth or Melbourne storms. We purchase reinsurance from an international market and so the price that we purchase reinsurance cover at is likely to be affected by the impact of weather events occurring across the globe, not just in our countries of operation. Significant losses internationally could have impacts on the price of reinsurance or other risk transfer services, which in turn has implications for the price that we can purchase reinsurance at.

The challenge with such a complex issue is how to respond. Together with building our understanding of the risks, we have divided our response into two parts. Firstly are managing our impact on the environment, by reducing the emissions that our organisation emits and encouraging other organisations to do the same – mitigation activities. Secondly,  we are focused on reducing and managing the impact that the environment has on us – adaptation activities.

IAG’s mitigation response involves focusing on reducing our own carbon footprint, as well as being an active participant in the policy debate on climate change. This means following through on our commitment to be carbon neutral by 2012 and continuing to advocate strong mitigation action. IAG was one of the first major Australian corporates to become a visible climate change advocate and we continue to support the introduction of a market mechanism to determine an appropriate price of carbon, to drive carbon emissions down.

However, even if we do succeed in reducing carbon emissions through mitigation activities, this is not enough. Given the impact that severe weather is already having on our customers and the communities in which we operate, we must also develop strategies to adapt to this changing climate.

Adaptation to changes in the climate is not a new concept. We have been dealing with this kind of uncertainty for a long time and individuals, businesses, communities and governments have long sought out ways to prepare themselves for the impacts of extreme weather and natural catastrophes such as cyclones, earth quakes and bush fire. Adaptation can and should take many different forms at the individual, business, community and national level.

Our ultimate aim is to prevent a risk from occurring in the first place but when that is not possible or is insufficient, you look to adapt. If change still occurs, you must respond and learn from the event to feed back into your prevention and adaptation strategies.

Everyone has a role to play in adaptation; individuals can make their houses more resilient with regular maintenance and upgrades, business can ensure that their supply chain is geographically diversified to prevent service interruption, communities can ensure risk-appropriate land-use planing and zoning is occurring.

However, insurers play an important role in adapting to weather risk and there are steps that IAG is already taking, both internally and within the broader community to drive adaptive response. These include:

Understanding the risks and opportunities – the work by IAG’s Natural Perils Research Team is crucial to ensuring that we understand the risks involved to help us determine our response to them.

Sharing information – IAG’s key area of expertise is risk assessment and management, and we share this expertise with the community and other stakeholders through different channels. For example, through our operating brands, such as NRMA Insurance, IAG educates customers on how to prepare for natural disasters, and how to ensure the impact is limited as much as possible.

Forming partnerships - to help our customers prepare through education campaigns and community engagement, for example though our partnership with the Queensland SES;

Assisting in emergency readiness and response - helping our customers when they claim by ensuring we can make payments quicker and help people to get back on their feet. For example, our Major Event Rapid Response Vehicles (or MERVS) fleet comprises two Toyota Landcruisers with roof mounted satellite dishes and three purpose built mobile offices with full functionality of a Claims Assistance Centre and Retail Sales Office. This fleet enables us to provide rapid response to critical incidents.

Influencing and advocating -  for example through advocating for the removal of barriers to adequate insurance, via a fairer tax system [combating underinsurance case study in community section] which would remove the unfair burden that taxes and levies place on insurance customers, making insurance too expensive for some customers.

Adapting our own internal processes - to be more nimble and responsive during major catastrophes, for example through the use of satellite imaging technology to make preliminary total loss assessments when the damage done might so severe as to prevent our assessors accessing the damage site on foot.

Going forward, we will continue to engage our stakeholders in mitigating and adapting to the risk of extreme weather, and are focussed on increasing our – and the community’s – understanding of the risks posed by climate change, and how together we can respond to them.