Why IAG Share Price Dropped 10%

Insurance Australia Group Ltd [ASX:IAG] shares fell 10% this week and are expected to drop even further. For most of 2017, IAG has continued to display disappointing results, with the share price plunging to its lowest level this year. IAG stocks dropped and continue to suffer over time.

The country’s largest insurer has seen a higher income turnover rate, as net profits rose 46.6% earlier this year. But it still hasn’t managed to rein in spending since. IAG have branched out their productivity usage, which have resulted in some significant changes, their stocks dropped as a result.

Why did IAG stocks drop?

IAG has been going through some infrastructure changes, which stem from outsourcing. Most administration work has been offshored to India to exploit cheap labour. This has left many Aussie employees without a job.
Productivity has lowered throughout the year as a large number of employees and managers have been sent overseas to train new staff. This has heavily impacted the company’s infrastructure, resulting in poor team management and a lack of leadership.

IAG has spent a vast amount of money training new employees and paying for travel expenses and accommodation to train staff.
The outsourcing was announced in late 2016 but only commenced in mid-2017. The fact that employees are training people who will be taking their jobs has likely diminished morale.

What’s ahead for IAG?

By the end of 2019, IAG expects to cut operating costs by $250 million. It hopes to profit from outsourcing jobs, cutting down on wage expenditure. That might help boost the flagging share price next year.
CEO and managing director Peter Harmer has stated that IAG’s operation will be adapted to the new system. However, it’s been speculated that the job offshoring investment will disappoint customers due to a decrease in productivity.


Nathan Frangoulis,

Junior Analyst, Money Morning

PS: Want to discover what we believe are some of the most undervalued billion-dollar businesses paying dividends that could supplement your income? Check out these five dividend stocks trading on the ASX right now.

Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

Money Morning Australia is published by Fat Tail Investment Research, an independent financial publisher based in Melbourne, Australia. As an Australian financial services license holder we are subject to the regulations and laws of Corporations Act and Financial Services Act.

Money Morning Australia