RAA will sell its insurance book to Allianz Australia for a huge sum

RAA will receive a large windfall after striking a 20-year deal with Allianz Australia over its insurance business.

RAA chief executive officer Nick Reade.

RAA will receive a $642m windfall after striking a 20-year deal with Allianz Australia to own and operate its insurance business, in a move which chief executive Nick Reade says will also make prices more competitive.

Under the deal, all 250 or so RAA insurance staff will move over to Allianz, with Mr Reade saying there were guarantees under the deal that the business will continue to be run from Adelaide.

RAA will still own the brand, and customers will still be able to talk to local staff about their insurance, either at RAA branches or in the call centre, with the latter operation staying local.

Mr Reade said the deal benefited RAA by taking the insurance risk of off its balance sheet, while customers would benefit from Allianz’s much larger scale, with prices to remain competitive as a result.

Extreme weather events including the Murray River floods contributed to an after-tax loss of $53.9m in the 2023 financial year for the RAA, as insurance claims blew out.

Mr Reade said the deal with Allianz was about creating long-term sustainability for the organisation.

“One of the issues is we can’t diversify our business geographically. Since we’re only in South Australia we don’t quite have the scale to compete with the big players,’’ Mr Reade said.

“It’s important to understand the model we’ve agreed with Allianz - RAA will have the control over our brand, the marketing, the distribution and service.

“Everything will be local - local leadership team and call centre for claims and the like.

“Allianz will be responsible for product pricing, claims and underwriting.’’

Mr Reade said the insurance business had large regulatory obligations, and with Allianz having about six million customers nationally, it had economies of scale which made it more competitive.

“And we won’t have the volatility of the risk,’’ he said.

“Our members will continue to have access to our award-winning insurance products with the same excellent level of service we’ve always offered, under the trusted RAA brand,’’ Mr Reade said.

“Members can still choose to get their cars fixed at RAA-approved repairers and, when members pick up the phone, they can still speak to South Australians.

“By partnering with Allianz, our members will see other benefits too including new RAA insurance products and services developed under the partnership over time.”

RAA would use some of the money to pay down debt, but Mr Reade said the organisation would consult with its board and members as to the best use for it.

“Broadly what we’ll do is rebuild the balance sheet a bit, pay down some debt, and then we’ll look to engage members in what we should be doing with the money.

“We’ll rebuild some capital after some draw-downs over the last few years ... but there will be a substantial amount of money left over to think about the future.’’

Options for the use of the money could include new member benefits and products and services, Mr Reade said.

As well as the initial $642m payment, there were other potential future payments linked to the performance of the business.

The deal is expected to be completed in the middle of next year.

In the most recent financial year RAA made a profit of $2.1m after tax on revenue of $782.4m.

It also recently launched RAA Energy, which offers a reatil energy solution for members which it says will save them potentially hundreds of dollars per year.