IAG says a turnaround in its Australian intermediated business will be a key plank in achieving improved performance as the insurer aims to leave behind issues that hit its results last financial year.

The company today confirmed an overall loss of $427 million, which included expenses related to business interruption provisions for the pandemic, customer refunds and payroll remediation. The figure was released last month in preliminary results.

“We have made significant investment to lift our risk and operational capabilities to help reduce the risk of these type of issues occurring again,” CEO Nick Hawkins said today.

Details in the finalised statements show breakdowns for the three key divisions, following a reorganisation announced last year. Direct Insurance Australia made a reported profit of $718 million, New Zealand achieved earnings of $305 million, while Intermediated Australia reported a $10 million loss.

IAG’s overall insurance profit was $1 billion compared with $741 million in the previous corresponding period while the reported insurance margin rose to 13.5% up from 10.1%.

Mr Hawkins says IAG is working toward the intermediated business achieving double-digit insurance margins over the next three-to-five years, with an insurance profit of at least $250 million targeted.

“We’re focused on upgrading the risk management and underwriting disciplines in that business and strengthening our relationships with broker partners to improve its profitability,” he said.

The division includes intermediated personal lines, such as Coles and Steadfast Direct, short-tail commercial, and long-tail classes where personal injury claims inflation has been an issue.

Mr Hawkins said further significant rate increases are still likely in long-tail classes, while intermediated personal lines remains a focus.

The Coles business, operating under a 10-year distribution deal agreed with Wesfarmers in 2014, has improved after earlier problems, he says.

“The Steadfast Direct business has still got its challenges in relation to profitability, so that is certainly something we are reviewing at the moment,” he said.

The company is forecasting a reported insurance margin for the company of 13.5-15.5% this year, as it looks to a medium-term goal of 15-17%.

Mr Hawkins says initiatives across the business have involved simplifying and standardising back-office operations, with the company now using one claims system and looking to roll out similar improvement in other areas.

IAG is awaiting the second Insurance Council of Australia test case on business interruption cover related to the pandemic, with Mr Hawkins seeing little impact from a Federal Court decision this month against The Star Entertainment Group in a claim dispute with Chubb.

“It is a small positive, but the read-through for the type of policies we have, and the implications for IAG are quite modest,” he said.

Mr Hawkins also said he expects the New Zealand Government to increase the $NZ150,000 ($142,920) Earthquake Commission cap, which it has been reviewing, although it is unlikely to reach a $NZ400,000 ($381,119) level suggested in a question put during the briefing.

“I am thinking somewhere in between is likely and we will just work with that, as that is announced,” he said.

The company affirmed its view that it has no net insurance exposure on Greensill trade credit policies with the financial documents recognising an outstanding claims liability of $437 million, matched by reinsurance.