- Insurance broking industry continued its growth momentum amid the COVID-19 period, and increased natural calamities might have led to higher demand for insurance products.
- Broking industry is going through a digital shift, with InsurTech start-ups disrupting the industry with offerings like comparisons.
- AUB Group has confirmed that FY20 adjusted NPAT would be at the higher end of the previously stated guidance range after a strong performance in June.
Insurance broking has been operating as an essential service during COVID-19. Over the past year, Australia has gone through a number of natural calamities, including drought, floods, cyclones, and bushfires.
As natural calamities impact personal properties as well as businesses, it might have dried the existing insurance covers of customers. In addition, the pandemic has certainly accelerated the need for having a health insurance policy.
Insurance market has grown in terms of competition over the past few years, and rising claims and decreasing profitability have forced major banks to consider divesting the insurance businesses. Moreover, a lower interest rate environment adds further woes to insurance sector players.
But the insurance broking industry is also going through disruption, as InsurTech start-ups like Embroker, Coverwallet, and FinanceFox are changing the ways people buy insurance. With online comparisons available, customers now have access to infrastructure to undertake astute decisions on their own.
Insurers have been inclined to improve their digital offering and embrace direct-to-consumer channels, which add risk to the insurance broking industry. Now insurance broking may need to accelerate their digital shift and offer services like new-age competitors.
As the insurance market continues to shift online, existing insurance brokers will likely need to catch up with the changing dynamics of the market for a sustainable business and growth. This would come through more collaborations with the insurers.
Insurance brokers would need to be agile enough to adjust to the changing distribution strategies of the insurers. There should be mutual consent between the brokers and insurers on their targets and strategies to achieve those objectives.
Insurance broking industry requires effective collaboration with the insurers, including communication between underwriters and brokers. It would also need better customer touchpoint that comes in the form of broker-agent online tools.
AUB Group Limited (ASX:AUB)
As at 30 June 2019, the company had 62 partner businesses having around 20% market share in the commercial insurance market of Australia, specialising in SMEs. It also provides life insurance broking, claims management and investigation, premium funding, loss adjustment, and legal services.
In New Zealand, the company had eight broking partners with leading position and presence in the NZ insurance market.
Its Agency business designs, distributes and manages niche insurance products and portfolios through 19 agencies on behalf of locally licensed insurers and Lloyds. AUB’s Group Services segment delivers partners’ product, technology and claims needs through its platform, AMS. Further, it has equity investments in two businesses engaged in health and rehabilitation services.
Its partners have access to a comprehensive suite of over 100 insurance and risk management offerings, and they are able to access market leading wordings and product exclusivity as a result of AUB’s scale and reach.
The company continues to partner with leading global and local insurers; AMS, a wholly owned AUB subsidiary, negotiates capacity with Australian and global insurers (including Lloyds) for its partners. AUB leverages the consolidated pool of funding to deliver major IT change programs across the network.
The company has underwriting agency capabilities, as its underwriting agencies provide Austbrokers with preferential access to a suite of highly tailored products that meet the bespoke needs of clients. AUB’s partners have access to the group's consolidated balance sheet strength to drive inorganic M&A growth.
AUB Group has confirmed that FY20 underlying NPAT would be at the higher end of the previously reported guidance range of $52 million to $53 million, representing growth of 12-14% over FY19. This announcement comes after a strong June performance. The company would release full-year results on 24 August 2020, and the guidance is subject to audit review.
During June, the group reported that the business was progressing with strategic initiatives and cost reduction programs to improve the underlying performance.
AUB reported that interim dividend of 14.5 cents per share would be paid on 3 September 2020 and Dividend Reinvestment Plan would be introduced again.
In April, a trading update for Q3 was released, indicating unaudited adjusted net profit after tax of $9.2 million. This meant an increase of 25% over the same period last year, taking adjusted net profit after tax to $30.5 million by the end of Q3.
AUB has a diversified portfolio of clients ranging across products and geographies. In Q3, premium rates increased by 6.3%, and customer premium collection continued to be strong. It launched Austbrokers Express Cover, and cost reduction initiatives continued through rationalisation of office space, third party spending and key roles.
AUB also announced the appointment of Ben Bessel as Austbrokers Chief Broking Officer, who would join on 13 July 2020. He comes with more than 26 years of experience in the insurance industry and held multiple senior roles with leading insurers. At the end of March quarter, the company had a strong liquidity position with cash and debt headroom of $82 million.
On 10 July 2020, AUB last traded at $14.650, up by 2.162% from its previous close.
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