Direct Line Insurance Group yesterday announced further initiatives to improve its operational efficiency as part of the continued implementation of its business transformation plan.
On 3rd August 2012 the Group announced a cost savings plan targeting gross annual cost savings of £100m in 2014, when compared with the 2011 cost base of £1,134m. The benefits of this plan were expected to offset other anticipated increases in expenses, with the aim of keeping the cost base broadly flat between 2011 and 2014.
The insurer announced proposed further cost reduction initiatives, in addition to those previously disclosed, with the result that the Group's cost base for 2014 is now targeted to be approximately £1,000m. This reflects a net reduction in annual costs of approximately £130m when compared with the 2011 cost base, and represents gross annual cost savings of more than twice the original £100m target announced in August 2012.
As part of these further initiatives, it is anticipated that approximately 2,000 roles may become redundant. The Group has begun consultation with staff and their representative bodies. Those individuals potentially impacted are largely employed in roles across head office and support functions.
Direct Line Group will maintain employee consultation throughout the process, whilst aiming to mitigate the impact of staff redundancy through redeployment and identifying opportunities with other potential employers. The Group has first hand experience of successful staff redeployment and will do its utmost to assist those affected in seeking new employment opportunities.
The Group's original cost savings plan included an estimate of restructuring costs of £100m to deliver the targeted £100m of gross annual cost savings. Following today's announcement, restructuring costs to deliver all cost reduction initiatives, including provisions for onerous property leases, are now estimated to be £180m. Of this £30m was recognised in 2012 with the remaining £150m expected to be recognised in 2013, or in 2014, with the phasing to be finalised. The expected costs of migrating the Group's IT infrastructure, is unchanged at £100m.
The cost reduction initiatives serve to underpin the aim of achieving the Group's target of a 15% Return on Tangible Equity. Direct Line Group will continue to explore opportunities to improve the performance of the business across the Group's five strategic pillars of distribution, pricing, claims, costs, and Commercial and International.
Paul Geddes, CEO of Direct Line Group, comments "This is another step in the ongoing transformation of Direct Line Group and an important part of our aim to regain competitive edge. While we continue to invest in the business with the aim of winning in a market which is changing fast, it's clear that we need to become more efficient to deliver the good service and value our customers expect. We have not made these proposed changes lightly and understand the impact they will have on our people. As we have done in the past, we will deal fairly and carefully with those impacted, and do all we can to support them through these changes."
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