Allianz Australia will underwrite RAA general insurance policies, excluding travel, and manage claims under the motoring club’s brand, and has struck a 20-year distribution arrangement.
Macquarie Equity Research analyst Andrew Buncombe says financial services are increasingly regulated, with capital charges rising for motor clubs as their market shares grow, pricing becomes more granular and reinsurance scarcer.
“The heart of a motor club is to provide services to their motor enthusiast customers. Over time, the insurance arms have become a material part of group earnings, and now with dominant market shares, this has brought additional regulatory attention,” Mr Buncombe says in a research report.
Meanwhile, other opportunities have emerged for motoring groups, such as supporting the shift to electric vehicles. Australian Motoring Services – comprising NRMA, RACV, RACQ, RAA, RAC and RACT – bought charging network Chargefox in 2022 and motoring clubs hold land in regional locations suited to the rollout of EV infrastructure.
“This is an obvious use of funds for the motor clubs as they look to de-risk their balance sheets away from financial services,” Mr Buncombe says.
Australia’s state and territory motoring clubs, which have more than 9 million members, have lobbied for road users and helped stranded drivers since cars were vying for space with horse-drawn carriages early last century.
Allianz Australia will underwrite RAA general insurance policies, excluding travel, and manage claims under the motoring club’s brand, and has struck a 20-year distribution arrangement.
Macquarie Equity Research analyst Andrew Buncombe says financial services are increasingly regulated, with capital charges rising for motor clubs as their market shares grow, pricing becomes more granular and reinsurance scarcer.
“The heart of a motor club is to provide services to their motor enthusiast customers. Over time, the insurance arms have become a material part of group earnings, and now with dominant market shares, this has brought additional regulatory attention,” Mr Buncombe says in a research report.
Meanwhile, other opportunities have emerged for motoring groups, such as supporting the shift to electric vehicles. Australian Motoring Services – comprising NRMA, RACV, RACQ, RAA, RAC and RACT – bought charging network Chargefox in 2022 and motoring clubs hold land in regional locations suited to the rollout of EV infrastructure.
“This is an obvious use of funds for the motor clubs as they look to de-risk their balance sheets away from financial services,” Mr Buncombe says.
Australia’s state and territory motoring clubs, which have more than 9 million members, have lobbied for road users and helped stranded drivers since cars were vying for space with horse-drawn carriages early last century.
In 1925, RACQ commissioned two mechanics, George Clark and Eddie Henderson, to patrol the roads in search of broken-down vehicles.
Since then, it estimates it has rescued more than 30 million motorists.
Associated insurance offerings and arrangements have evolved over the decades. Clubs have discussed collectively forming a large national insurer and a variety of links with underwriters have existed.
RAA says it has been in insurance since 1923, providing a recommended policy with Lloyd’s of London through Edward Lumley and Sons (SA), which continued for 67 years. It has teamed up with others for about 80 years in total.
“We’ve partnered with other providers for most of our 100 years in insurance – so this is nothing new for RAA,” CEO Nick Reade said in a LinkedIn post after announcing the December 2 Allianz deal.
The National Roads and Motorists’ Association (NRMA) started providing insurance to NSW and ACT members in the 1920s. It demutualised in 2000, separating the road service and insurance operations. NRMA Group Limited listed and was renamed Insurance Australia Group in 2002.
In Victoria, IAG has a long-term partnership with RACV, holding a 70% stake in the Insurance Manufacturers of Australia joint venture.
Suncorp joined up with motoring clubs through its 2001 AMP insurance acquisition, which included 50% stakes in RACQ and RAA joint ventures.
It exited the holdings, which it described as good investments, in 2010 as part of a simplification program. In 2021, it sold a half share in Tasmanian RACT Insurance back to the mutual.
The RACQ insurance operation launches in 1971
The RACQ insurance business, established in 1971, now ranks second in Queensland in motor and home, behind Suncorp. After-tax profit recovered to $52.7 million last financial year after two years earlier sliding to a $236 million loss, including a $149 million provision.
Speculation that RACQ, which has 1.7 million members, would look to reduce insurance volatility gained traction in 2022 as underwriters generally were hit by soaring catastrophe claims, including record flooding. IAG was tipped to show interest due to its motoring club links and a relatively “underweight” Queensland position.
IAG chief executive Nick Hawkins said after the deal that the RACQ brand is “iconic” and “extremely well loved” and the business is a cultural fit for the organisation.
“This is really important for us,” he said. “We see this as a growing market and we see this as a great opportunity for us to engage more with Queensland.”
The portfolio is expected to add about $1.3 billion to IAG’s gross written premium, including $689 million from motor and $586 million from home.
UBS analysts say IAG has faced difficulty expanding in Queensland with its NSW-focused NRMA brand, and RACQ could give it a combined state home and motor share of about 28%, just shy of Suncorp at about 29%.
Analysts expect the Australian Competition and Consumer Commission to closely examine the transaction and say there is a risk it will not gain approval.
“We expect a decision will hinge on how many competitors are still active in the region, and how much success challenger insurers and subsidiaries of large global insurers are having in the region,” Morningstar analyst Nathan Zaia says.
JP Morgan says “prima facie” concentration would not hit extreme levels, but “at the very least” there is a risk of deal delay if the ACCC requests more information, as happened with the Suncorp bank sale to ANZ.
RACQ CEO David Carter says insurance will remain an important part of the business under the new arrangements.
“We bring our very good capabilities around brand, marketing and distribution, the most trusted brand in the state, and we are partnering with an organisation that brings great capabilities around products, pricing, underwriting and claims handling, as well as its very strong balance sheet and reinsurance capabilities,” he says.
“We wanted to reduce the volatility in our earnings that comes with being in insurance, and we wanted to reduce the demands on capital that would come from continuing to grow our insurance business. They’re two things that IAG is very, very good at managing.”
RAA CEO Nick Reade (left) with Allianz Australia managing director Richard Feledy. Allianz will underwrite RAA general insurance policies and manage claims
RAA also says it has been exploring ways to create long-term resilience and sustainability in its operating model, and the partnership with Allianz will reduce risk exposure, rebuild the balance sheet and deliver more value for its 825,000 members.
“There are a lot of challenges facing the global insurance industry, from more frequent and severe weather events to the increasing cost of regulation, reinsurance and technology platforms,” Mr Reade says. “As a local
insurer, RAA doesn’t currently have the ability to leverage the scale of national or international insurers, nor the geographic diversity to lower risk – making it harder to shield our members from these global challenges.”
Overall, RAA made a $2.1 million after-tax profit last financial year, compared with a $52.1 million loss in the previous period, which included Murray River floods and a pricing remediation provision.
Deal completion is targeted for the middle of the year, assuming regulatory clearances.
“We were strongly drawn to partner with RAA due to its compelling strategy and platform for growth, the underlying quality of the business, and the relative stability and profitability of the insurance market in South Australia,” Allianz Australia managing director Richard Feledy said.
RAC – which has pointed to a challenging environment that has driven rising premiums in Western Australia – has not given a time frame for its strategic review. A spokesman says the group conducts such reviews “from time to time” across all aspects of the organisation and it will not comment further given the confidential nature of the exercise.
“RAC is constantly looking for ways to improve our member experience and the services we provide, including insurance,” he tells Insurance News.
Group chief executive Rob Slocombe and president Allan Blagaich say in the latest annual report that, compared with three years ago, the volume of claims received has increased 28% while the overall cost of claims has risen 81%.
“Broader indicators continue to point to major weather events becoming more frequent and more extreme over the years ahead, and the assets they damage continuing to be more expensive to repair and replace,” they say.
RAC has more than 1.3 million members and is represented in more than 60% of West Australian homes. It made an overall group profit of $105 million last financial year.
KPMG’s Mr Guse says motoring clubs’ branding is strong and they offer a loyal customer base. From the insurer perspective, they can represent an alluring opportunity.
“It’s really the distribution and brand loyalty that attracts purchasers to these organisations, and it’s a great way for an organisation to expand into a market where it may not have much presence,” he says.
