RBSI gets ready for 2013

RBSI wants to keep the customers flowing in by having an edge with its pricing. If they cut their cost base effectively through these redundancies, it’s entirely possible, even in a difficult market like this one, to have an edge on pricing against competitors.

Perhaps what’s more important for RBSI, is how it can tackle the seemingly ever-escalating bodily injury claims that have bled the business dry in the past year. Results have been badly affected by bodily injury.

Last year, RBSI’s profits plunged 90% to £54m last year, a drop in net income from £584m in 2008. In 2009, the bank-owned business had to set aside £448m in reserves for bodily injury.

First quarter profits this year dipped into the red at £50m. Compared to previous years, where RBSI’s profits were on course to smash the billion-pound barrier, and you can see something has to change.

Geddes recognises the problem and has beefed up his fraud detection unit, in November last year RBSI raided RSA to poach Steve Maddock as claims boss. Geddes promises there are plenty more initiatives on the way.

The final weapon to fight bodily injury is rating increases. Geddes has not put a figure on those rating increases, but market sources say there are in the double-digit arena, along with the rest of the industry.

Other insurers such as AXA, Fortis and Provident has been affected by bodily injury, and all have pushed through rate increases, so it’s not to say RBSI is alone in combating the problem.

The second important strategy for RBSI is about making sure it does not lose its edge on pricing. By getting cutting out the aggregators, RBSI uses its brand name strength – although at an expensive price through advertising - to go direct to the customer, effectively using that commission saving to offer better deals.

But as Geddes says, the market has caught up with business such as Direct Line, and a quick quote check on the aggregators will show there are some fantastic deals out there.

The redundancies are brutal, but they will help RBSI lower its cost base which should filter through on pricing. A low-cost operating high growth company, with a strong control on its claims expenses, is an attractive proposition for investors looking to buy up shares in the business by the time it divests in 2013. And ultimately, this is what it’s all about.