RAC takes plunge

THE Royal Automobile Club has sold 50 per cent of its general insurance business to Australian general insurance giant Royal & Sun Alliance.

RAC chief executive Terry Agnew said the consolidation of players in the general insurance market had forced the club to find ways to reduce its costs and remain competitive.

Some of the recent consolidations include AMP’s purchase of GIO and NRMA’s purchase of SGIO and some of RACV’s insurance business.

The greater scale caused be these consolidations allows for reduced costs that will lead to cheaper products.

Mr Agnew said the joint venture would improve the club’s bottom line through reduced administration costs.

“It allows us to reduce our costs ratios more than if we had tried to do it by ourselves,” Mr Agnew said.

“General insurance consumes capital. Going from a 100 per cent to a 50 per cent owner of an insurance business frees up some capital.”

Mr Agnew said the RAC had briefly considered a float option.

Royal & Sun Alliance is bringing its product, information technology and underwriting expertise to the joint venture while the RAC is providing a brand name, distribution network and customer base.

RSA managing director Michael Wilkins said the venture allowed his company to improve its position in WA.

“WA is probably the only area in Australia where we’ve lacked some scale,” Mr Wilkins said.

RSA offers commercial and life insurance products under its name and products from its Australian Pensioners Insurance brand in WA.

However, it wants to position itself as a manufacturer and wholesaler of insurance products.

Products from the joint venture will be released under the RAC brand name and all decisions and claims processing will be conducted in WA.

RAC Insurance general manager Tony Carter said decisions on premium price and product development would also be made in WA.

The RAC’s insurance business drew about $150 million in premiums last year and was ranked 16th largest in Australia by a 1999 KPMG report.


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