In announcing its new 2004-06 strategy - Beyond First Choice - AXA revealed it has taken the monumental decision to cut down its involvement in direct personal lines. AXA Insurance chief executive Peter Hubbard told Michelle Hannen why the numbers add up for the insurer to concentrate on other areas

Offshoring to India aside, it is AXA's decision to cease investment in AXA Direct, its direct-to-consumer personal lines offering which stands out most in the insurer's new strategy. The decision is a recognition that AXA Direct does not have the market presence of Direct Line, Churchill, or even Norwich Union Direct, and acquiring that kind of presence is a costly exercise for a business looking to save money.The move to cease investment in AXA Direct is effective immediately and will result in 220 job losses of primarily sales staff from offices in Morecambe and Darlington, over the next nine months. But Hubbard says that the company is not withdrawing from personal lines altogether. Existing AXA Direct customers will be maintained and offered renewals, the AXA Direct website will remain "turned on" in order to sell new business online and the company will continue to sell personal lines through intermediaries.He says the decision came after running the numbers and assessing AXA's core strengths. "One of the things we have learnt over the last two years is what we're good at and what we're not so good at," Hubbard says. "What we're actually increasingly good at is dealing with intermediaries and corporate partners. So we're going to focus our business on commercial intermediaries, commercial direct, personal intermediaries and corporate partners."

£40m investmentThis more focused approach will see the insurer invest £40m over the next two years in a new front-end claims system to improve claims process management and in the further e-enablement of

AXA Business Risk. "We think there's a lot more still to go in claims management, which at the end of the day is what we're in business to do. So we're going to invest more in claims process improvement and automation," Hubbard says. "And with AXA Business Risk, at the moment we have e-enabled the quote, mid-term adjustments and renewals. As we look towards 2006, we want be adding settlement, commission and claims tracking. In other words we start to e-enable the whole of the relationship we have with our third parties."Our whole philosophy is to become easier to do business with," he says.

Feasibility studyDespite the additional investment, cutting costs remains a necessity, and Beyond First Choice has a target of reducing AXA's expense ratio to below 9%, and costs by another 17%, by 2006.The decision to offshore an additional 230 jobs to the company's India subsidiary, AXA Business Services, is core to the planned cost reductions. Hubbard says the company has not yet determined which positions will be lost and plans to launch a feasibility study into the issue in February.He says the unions have also been consulted about the company's plans. "We've agreed seven principles with our unions around how we manage the transition to offshore."The 230 positions come in addition to the 220 which will be lost as AXA Direct is scaled back. Hubbard says the company will also shed 250 more jobs in the course of 2004 as a result of "productivity improvements" and "natural attrition", bringing the total to 700."We don't believe that any more than half of the 700 will be by compulsory redundancies," Hubbard says. He says the company will "push for redeployment" where possible. But Hubbard says the figures add up and AXA is still on track for growth, albeit not at the same pace as the past few years, due to what Hubbard describes as a "less hard" (read: softening) market. "We're still looking to grow the business. In First Choice we aimed to grow our gross written premium by 30% over the three years [from to 2002-04], which we should easily achieve," he says. "Because we're actually entering into a less hard market over the next few years, we're still aiming to grow but the growth will be more in the line of just over 10% than the 30% we did before."All this, Hubbard says, should enable AXA to reach a combined ratio of 104% at the end of 2004. "Given how complex our business is and the number of different lines we write it's actually starting to look like a pretty good combined ratio target," he says. The Holy Grail, a combined ratio of 100% or lower, should be achieved by 2006, Hubbard says. Providing, that is, if he has done his maths right.

Beyond First Choice, 2004-06 in figures220 job losses as a result of ceasing investment in AXA Direct.230 job losses as a result of more offshoring to AXA Business Services in India.250 job losses through productivity improvements£40m investment in a new front-end claims system and enhancing Business Risk.Reduce expense ratio to below 9%.Cut costs by a further 17%.Achieve GWP growth of 10% a year.Reduce combined ratio to 104% by 2004 and 100% by 2006.

The FSA approach to outsourcingThe FSA's outsourcing policy applies to the use of third parties to provide services, including "the provision of services that were never in-house in the first place".

Key provisions include:

  • The supplier should be a "competent, financially sound firm with good relevant knowledge and expertise". The regulated firm should be able to demonstrate that it has taken proper steps to verify this and that it also has procedures to assess the supplier's performance on a continuing basis
  • A regulated firm should have a written service level agreement (SLA) in place with its supplier. There
  • should be a right to terminate the contract in the event that the supplier undergoes a change of ownership, becomes insolvent, or goes into liquidation or receivership
  • The contract between the regulated firm and the supplier should provide access for external audit, the firm's internal audit, and the FSA.
  • UK v India - How call centre performance variesResearch carried out by ContactBabel suggests that call centre standards in India are not as high as they are in the UK. Forty-four Indian call centres were surveyed in the report.

  • Key observations include:
  • Over a third of callers to India have to ring back another time. This ratio is much higher than that for outsourcers in the UK where there is a "first-time resolution rate" of over 90%. "This is a real failing of Indian contact centres, and needs to be addressed if they wish to move up the value chain", ContactBabel says
  • Inbound calls to Indian call centres are 70% longer than those to outsourcers in the UK. "This points to a potential problem in Indian contact centres. The types of low-value calls that most are taking should be dealt with swiftly," ContactBabel says.
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