The Guardian February 23, 2000


Vote "NO" to NRMA privatisation

by Anna Pha

On April 19, around 1.8 million members of NRMA, the NSW motorists' 
association, will have the right to vote on whether NRMA's insurance arm 
will be demutualised, i.e. privatised.

This is the second attempt to demutualise the insurance company.

The first, around six years ago, failed when board members Richard Talbot 
and Dawn Fraser successfully challenged the move in the courts.

NRMA is the largest general (car, home, contents, etc) insurer and second 
largest insurance company in Australia.

As a mutual it is owned by and run for the benefit of its members, not for 
private profit.

Over the years it built a reputation of fairness in handling claims and as 
a good employer. It offered members a rebate on insurance policies.

In recent years this has changed, presumably in preparation for 
privatisation with its shift in focus from serving members to making 
maximum profits and dividends for shareholders.

The aim of those pushing the privatisation drive is for NRMA Insurance to 
make a return of 18 per cent per annum  high by any standards.

The proposal is to float the insurance company on the stock exchange.

The carrot to get members to vote "Yes" is the offer of shares worth from 
around $400 to $4,000 or more. The exact amount would depend on the length 
of membership of the NRMA and the number of insurance policies held.

For example, someone with 10 years' membership and three insurance policies 
(car, home and contents) might receive $2,000 or more worth of shares, 
depending on the market.

Members would be able to cash in their shares or hold them as an 
investment.

Higher prices

NRMA has played an important role in keeping down the price of insurance 
not just for members, but also the premiums of competing private insurance 
companies.

Once NRMA's insurance arm is privatised, prices will rise across the board.

NRMA insurance has also subsidised the operations of the road service arm 
of the NRMA  helping to hold down membership fees. At present annual 
membership of the NRMA is $46 with no charge for service calls.

Demutualisation would amount to privatisation and open the way for the big 
investment houses and financial institutions to take it over.

Prices would be affected by the separation of the road service and 
insurance operations which presently operate out of the same offices.

Under the demutualisation proposal there would be complex business 
agreements by which the privatised insurance company would receive a steady 
and increasing flow of fees from the road service group.

The road service group would pay for every use of branch networks, call 
centres, the Internet, country service centres, back office services, human 
resources, finance, purchasing, property management, marketing, statistical 
research and investment services, which would be supplied by the insurance 
company  renamed NIGL  at cost plus five per cent.

NIGL would have the use of the NRMA brand name, worth millions because of 
the considerable membership loyalty NRMA has.

As a result it is estimated that road service costs would blow out from $10 
million this year to $22.6 million in 2004.

Some of this additional cost would be met from capital based on shares 
allocated to the road service arm during demutualisation.

It would receive 10 per cent of shares being allocated and then sell 80 per 
cent of these  apparently not giving it enough to prevent the cost of 
road services rising.

Further down the track motorists could face fees for roadside calls and 
reductions in the quality of service due to cost-cutting.

NRMA members would be the losers  paying more for road services and their 
insurance from not-so-friendly companies.

Vote "NO" on April 19.

Back to index page