Jobs at risk from Direct Line’s £100m cost-cutting

Direct Line Group’s push for an additional £100m of annual cost savings will result in redundancies, chief executive Paul Geddes says.

However, he insisted job losses would only be “a component” of the cost cuts, and that extra efficiency would be sought on several fronts, including marketing costs, building costs and procurement costs.

Direct Line Group announced in its results last Friday that it was seeking an additional £100m of annual cost savings by 2014. The company said cost-cutting initiatives would include reducing administration costs in central functions and improving marketing efficiency.

The cuts will be made from a total cost base of around £1bn, Geddes said. Now Direct Line Group is effectively running as a stand-alone identity within parent company Royal Bank of Scotland (RBS), it now has a better idea of its costs, he explained.

“Now we have got our arms around the total organisation we are going to work with the organisation to work out how we can run ourselves even more efficiently,” Geddes said. “As a consequence of running more efficiently, one would hope that you could run the organisation with slightly fewer people. That will help towards the £100m, but it is certainly not all of it.”

He said it was not yet possible to say how many jobs would be cut because the company is still working out how to operate more efficiently.

“We are completing that process to work out what the new organisation looks like and then we’ll cost it,” he said. “The first people to know will be those impacted and we will work through it with them before we announce it externally.”

The restructuring associated with all Direct Line’s cost-saving initiatives, including these latest ones, is expected to cost the company £100m. The company will incur this charge before the end of 2013.

Direct Line Group will be spun off from RBS in the second half of this year. The plan is to float the insurance group on the London Stock Exchange, but there are persistent rumours that private equity will buy it.

Direct Line Group reported a 6% increase in first-half 2012 profit on Friday to £219m from £206m in the first half of 2011. The improvement came despite bad weather claims in the home insurance business being £50m worse than expected during the half as a result of the flooding.

“We are particularly pleased that we are starting to see all the hard work we have put into pricing, risk, claims come through in the performance,” Geddes said.