Norwich Union and Zurich chop 2,700 jobs as recession looms.
The UK insurance industry started haemorrhaging jobs this week, with 2,700 set to be axed. Analysts warned that thousands more could follow in the first sign that the economic slowdown has hit the market.
Aviva-owned Norwich Union announced plans to slash its workforce by up to 1,800 by 2010, while Zurich announced that up to 900 jobs could go by the end of the year.
As well as the tough economic climate, insurers and analysts pointed to historic inefficiencies in the structure of the businesses, and said that other UK insurers suffered the same problems.
Ian Clark, insurance partner at Deloitte, said: “Businesses are governed by the state of the economy. You have still got declining rates in most lines of business, and one insurer alone can’t turn the market cycle. So if they are going to maintain profitability, they have got to look at their cost base.”
Clark added that any of the major insurers with high head counts could follow Zurich and NU in slashing jobs.
In a report released this week, KPMG predicted that the UK market would see many more restructurings in the months ahead.
The report, Strategic Restructuring and Re-domestication for Insurers, said: “The legacy of the way in which many major UK groups were created through merger and acquisition has been the need to streamline the businesses subsequently.”
It said that insurers could benefit from more capital efficient arrangements and more manageable group structures.
John Kitson, sales and marketing director for NU, said the cuts, which could amount to 10% of the insurer’s UK workforce, were secondary to its plans to restructure the company’s operations function, simplify processes, and improve customer services.
He said: “To stay as number one in a massively competitive, fast-changing market, incremental changes are no longer sufficient and we have to do transformational changes. Therefore what we’re announcing is a transformational change in our operating model to keep us as number one into 2011 and beyond. We take great care on that.”
It is the second time in three years Aviva has announced a massive reduction in staff. In 2006, Aviva said it would be cutting 4,000 jobs by the end of 2007. Norwich Union axed 200 IT staff in October and 30 directors the following month. The company employs around 18,000 in the UK.
NU’s announcement came on the heels of rival Zurich announcing cost cutting measures that could see up to 900 UK staff lose their jobs. The company said it was looking to slash 10% off its cost base in order to build a platform for growth.
Guy Munnoch, chief executive of Zurich UK general insurance, could not say which areas the job cuts would affect. “We are at the start of the process. We aim to move quickly,” he said.
He added that the company was also considering whether to close some of its offices: “We are looking at our premises strategy, but have made no decisions yet.”
Some insurers saw the job cuts as on opportunity to differentiate themselves on service.
Simon Cooter, Brit’s distribution director, said: “At a time when industry service levels are stretched anyway, many brokers will be concerned about any major reorganisation.
“In my view it is almost impossible to make major changes, especially those that involve significant job cuts, without service being affected.”
Insurance Times says:
Brace yourself. As headline after headline has told of job losses in banking and other financial services, insurance has seemed strangely immune. But no business can be separated from the economy at large and this weeks news of job losses can be taken as a sign of things to come. In the current climate, businesses simply cannot afford to be wasting money, and with their inefficient structures, riddled with legacy issues from decades of mergers and acquisitions, insurers are doing just that.
The analysts all agree: this weeks announcements are the first of many.