Following Q1 losses of £50m, chief executive Geddes hopes low prices will draw in customers

RBS Insurance is to slash 2,000 jobs, as it aims to cut costs and bring the business back into shape before the sale or flotation in 2013.

The axe will fall across all of RBSI’s brands, including Direct Line, Churchill, Privilege and broker-only insurer NIG. Five hundred back-office jobs will be outsourced offshore.

Chief executive Paul Geddes said the changes would help RBSI regain its competitive edge, delivering top prices for customers and attractive returns following the divestment.

Geddes was speaking after the bank-owned business lost £50m in the first quarter of 2010, compared to an £81m profit in the same period last year. “The reason I talk about competitiveness in the marketplace is because customers are concerned about getting the best price. Greater numbers of customers compare prices and it’s easier to do so now than ever before,” he said.

“An insurer that does not have a competitive cost base needs to get one, because that is what the customer ultimately wants and successful businesses are driven by the customer.

“Our customers have been getting good value. This is about being able to sustain that good value and giving an attractive return to the investor, which is more important than ever as we contemplate a future separate from RBS Group. So the results we made in Q4 and Q1 – we need to improve on those significantly going forward.”

As the UK’s largest personal lines insurer, RBSI is at the forefront of the battle against rising bodily injury claims, last year reserving £448m to cushion the blows.

Geddes said: “You will see a number of initiatives in claims over the next few years, making major investments both in technology, and new leadership in claims.”

Shortly after the announcement, LV= and RSA announced they would be recruiting for hundreds of new jobs.

RSA wants 230 new staff for its Peterborough office to help consolidate its deal to supply Tesco with pet insurance. LV= is targeting 160 insurance staff around the country, mainly in claims roles.

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