RSA has joined the list of insurers that have made significant job cuts in the past 12 months, including Aviva, Direct Line Group, Zurich and AIG.

The cuts are a further sign that insurers are trimming costs wherever they see an opportunity, and also point to the emergence of a new regional trading model for large, national insurance groups.

The 93 jobs at risk are in RSA’s Croydon operation, which currently employs 105 people serving the UK mid-market. Some of the back-office roles will transfer to the insurer’s Manchester operation, while RSA will retain a 23-strong customer- and broker-facing trading office in Croydon.

Despite RSA’s recent exit from UK mid-market motor trade business, an RSA spokesman emphasised that the cuts were nothing to do with the performance of the mid-market division. He said the decision was based on improving efficiency. The Manchester operations already housed some mid-market operations staff and so it made sense to put all the staff in one place, he argued. There was also an element of cost-cutting to the decision.

Follow the leader

RSA’s move closely resembles the recent action announced by Direct Line Group’s broker-only commercial insurer NIG at the end of November last year. NIG cut 90 jobs from its regional offices, moving administration and underwriting support roles to two central hubs - Manchester for the north and Bristol for the south. This leaves the regional offices to focus on negotiating new business and renewals.

Like NIG, RSA has insisted that because it is retaining a trading office in the affected region, client and broker service in the area will not be hurt by the change.

The model these insurers and others are employing appears to make a lot of sense for efficency. Costs are reduced by consolidating support staff in a smaller number of locations, yet client and broker staff remain in the regions, so contact is not lost.

Insurers found that closing regional offices outright can cost them valuable business. For example, South Essex Insurance Brokers deputy chairman Barry Fehler told Insurance Times in November that the business his company placed with NIG dropped sharply after the company closed its Chelmsford office in 2011.

But some brokers feel the jury is still out on whether the model works, and say there is a danger that service could be hit by stripping out regional offices’ support functions.

NMJ Insurance Brokers co-founder Nick Potts said: “I can’t say we have seen an impact yet, but we suspect it is likely to have some impact and it is unlikely to be favourable.”

He added: “We prefer to deal locally with local people if we can, simply because it tends to be all about the relationship. If you are dealing with a back-office processing unit, you tend not to speak to the same person twice. You tend to speak to whoever picks up the phone or gets the email, and you don’t build up the relationship that you used to have in the local offices where you knew the person you were dealing with.”

But others feel that the changes will not be harmful as long as access to underwriters with local knowledge is retained.

Ashbourne Insurance managing director Peter Smits said: “As a general rule I am against insurers closing regional presence – I don’t think it helps. Particularly for a business such as ours where we are trading on our high street, there is a benefit to having a local office that has got some reasonable knowledge of the area, its various nuances and the business types.”

But he added: “If it is just a question of moving the operational and the administration side, then that’s not a problem. It is the underwriters that need to have an element of local knowledge. As long as we have got access to those people on a regional basis, that doesn’t create too much of an issue to us.”

Cost-cutting opportunities

Whether the new regional model causes a drop in service or not, brokers should expect insurers to continue pursuing it where they see an opportunity to do so. Thanks to the challenging economic environment, premium growth opportunities are dwindling and claims are rising, meaning that sub-100% combined ratios are harder to come by.

In the past this would not have been a problem for overall profitability, because insurers could rely on investment returns to compensate for any underwriting losses. But prolonged low interest rates are severely depressing returns from insurers’ bond-heavy investment portfolios, meaning  that underwriting profitability is more important than ever.

With loss ratios creeping up, cost cutting is one of the few weapons insurers have left to combat the tough environment.

The RSA spokesman acknowledged that while cost cutting was not the main reason for the Croydon move, it played a part, and further opportunities are likely to be taken.

He said: “We are always going to keep looking at cost savings but we don’t have anything planned at the moment.”

Insurers will need to explain any changes clearly to their regional brokers and ensure that they keep their promises of continued good service.

A year of cuts

Significant UK insurer redundancies in the past 12 months