BACKGROUND

Melbourne Automobile Insurers (MAI) is a leading car insurer in Australia. It was established in the early 1970s. Today it has more than 40 branches and has nearly two million policy holders with an underwriting profit of over $50 million.

MAI, like all insurance companies, operates in a highly competitive environment. In recent years, there has been a proliferation of non-traditional retailers of car insurance that has caused great concern for MAI. Banks and finance companies are now joined by manufacturers and distributors of cars in the marketing of car insurance. Many of MAI's competitors have been intent on maintaining their market share and have kept premium rises to a minimum, thereby discouraging their policy holders from shopping around for a better price. The competitive environment extends beyond premium pricing issues to include a range of value-added products and incentives such as "liftetime rating 1" and discounts on multiple policies.

The Australian general insurance market went through a turbulent year in 2000. General business issues such as Y2K, the implementation of a new tax system, including the introduction of a goods and services tax, and corporate law reform program (CLERP) consumed a great deal of non-productive time and resources.