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2000 UK Job Cuts in Competitive Insurance Market

Cheap Office Insurance available in the UKDirect Line is an insurance group in the UK, coming from the Royal Bank of Scotland. They have announced that they want to axe around 2000 positions this year, following suit to other insurers in the country who are all trying to reduce costs in this slow and competitive market. Direct Line are looking to save £130m each year by 2014, targeting a cost-base of £1bn in 2014.

Direct Line is Britain’s biggest car insurer with about 15,000 employees. They have been cutting costs and avoiding high-risk drivers for the past 3 years to protect themselves from the aggressive competition and new regulations in the British motor market. Oriel Securities analyst Marcus Barnard said: “If you go back 20 years, a lot of the paperwork was done by brokers. As insurers have gone more direct and more automated, they’ve needed fewer and fewer people”. Other big names in the insurance market have also been cutting costs recently, including Aviva Plc, AXA and Standard Life. Another tactic being employed is to outsource call centre work abroad to countries like India to drive down wage costs at the potential loss of customer service quality. Direct Line is also continuing to migrate its IT infrastructure, which is estimated to cost around £100m.

The job cuts aren’t just low-tier workers: head office positions are also on the line. Barnard said: “It wouldn’t surprise me if there’d be more cuts from Direct Line, but they’ll probably do at most one of these a year”. Berenberg’s Sami Taipalus added: “Direct Line was very unprofitable for many years; part of the upside of the IPO was that they were going to restructure the organisation”. Since the float in October 2012, Direct Line’s shares have risen by 17%, giving them a market value of about £3.29bn. Individual shares were up 5% on the London stock exchange, sitting at £2.30.

James Savery, 26 June 2013

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