Aviva plays the numbers game

WE all face into an uncertain future.

The 2,000 people employed in Ireland by the British-based insurance giant Aviva know this only too well. This group, spread across Ireland, has been kept on tenterhooks since the spring, as doubts about the future of hundreds of jobs at the company began to emerge.

In May, concern about the future of about 200 positions was first aired. The company, however, kept silent on the matter, apart from confirming that it was carrying out a review of the organisation.

The following month, the editor of Industrial Relations News, Brian Sheehan, provided some interesting details on the problems being encountered at the Irish operation. In particular, he reported that running costs at Aviva were running ahead of key rivals, AXA, Royal Sun Alliance, and the IFA-backed Irish operator FBD, and way ahead of those at Quinn Insurance.

The mean cost income ratio in the industry is approximately 22% while at Quinn Insurance, it is 15%. Quinn, of course, has had other problems relating to the quality of its underwriting, which resulted in it being put into the hands of administrators in 2010.

The ironic thing is that Aviva has been to the forefront of outsourcing and offshoring Irish jobs to India. In May 2008, it was announced that 580 positions were being axed, with the jobs being transferred to Bangalore, India, over a three-year period.

Through the summer, the Aviva jobs story rumbled on before bursting into the public consciousness this week, when RTÉ’s Prime Time reported that up to 500 jobs could be on the line. The potential job loss figure was raised to 700 by one national newspaper. The trade union Unite, which represents 1,200 people at Aviva, has grown increasingly concerned as the week has gone on.

The company’s refusal to deny the assertion that up to 700 jobs could be at risk has seriously spooked officials. The union’s Brian Gallagher believes that the events of 2008 may be about to be repeated, with management releasing information through the media. This week, the company declined to go into specifics following Prime Time.

Gallagher and his colleague Colm Quinlan have acknowledged that in other senses, Aviva has been good employers, with terms and conditions at Aviva offices seen as satisfactory. Pay levels average between €37,000 and €38,000.

In today’s world, such salary levels could be hard to replace.

If and when the axe falls, the employees concerned can expect to depart with reasonable terms and conditions, but re-employment prospects could be limited as the insurance industry in Ireland has been coming under pressure on a number of fronts.

Aviva is active in general insurance, life and pensions, and most recently, in health insurance, following its €35 million acquisition of health insurer Vivas.

The non-life market has been hit hard: The jobs shakeout has impacted on employers’ liability premium income, while fewer people have been insuring their cars. The life business has been severely affected by the drop in discretionary incomes, reduced tax relief and the poor performance of stock and bond markets. The industry as a whole has been hit with tougher regulatory rules under the less accommodating regime of the financial regulator, Matthew Elderfield.

In 2009, Aviva moved the headquarters of its European operation to Ireland. Our low corporation tax rate and reputation for ‘light touch’ regulation were important factors in a decision which prompted hopes of an employment boost here.

Tax changes in Britain and tighter regulation here prompted the decision this year to move the headquarters back to London, a move which inevitably hits jobs.

Irish Insurance Federation spokesman Niall Doyle said: “The background is tough all round. The Government is putting a 5% levy on non-life policies. Competition is tough. There is downward pressure on prices and a massive amount of regulation.

“We are not the banks — having to cope with massive regulation increases costs and the increase must be passed on in premium increases — there are a hell of a lot less people driving.”

However, Doyle concedes that the industry is still profitable, but companies could pull out if this ceased to be the case.

“Most of the industry is owned by foreign groups. We are a tiny part of the global organisation. There is massive pressure to keep costs down.”

Yet there is still good money being made.

Take Vivas, the homegrown health insurer set up by former Trade Board and VHI boss Oliver Tattan, with heavy backing from financier Dermot Desmond.

The duo, along with 35 managers, hit the jackpot when Aviva acquired Vivas in May 2008 for €35m, just before the economy tanked. Tattan reportedly netted €10m while the canny Corkman Desmond, no doubt, filled his boots to the point of overflow. But Vivas, now known as Aviva Health, has continued to be a nice little earner for Aviva.

It has been benefiting from a Supreme Court decision which has thrown the future of our community rating into doubt.

Despite protestations to the contrary, Aviva Health has been busy cherry picking young families and younger people generally, leaving the state-run VHI to struggle on with an ageing customer base.

Aviva itself has existed as a name only since 2002 when it emerged out of a 2000 merger between Norwich and the CGU to form CGNU.

The CGU itself emerged in 1998 out of a merger between British firms Norwich Union and General Accident.

Aviva is now a vast global entity, with 46,000 employees and 53,000 customers.

It has 1.2 million customers in Ireland, including 300,000 insured by Aviva Health.

The company is best known for its €44m brand name sponsorship of Lansdowne Road — this week, Unite claimed that the full cost was being borne by the Irish operation, an assertion yet to be denied.

Aviva Ireland, however, has a much longer heritage. Its core operation is the old Hibernian Insurance group, a company that can trace its origins back to 1908. Over the years, the company moved in and out of foreign ownership, but for much of this period it was an Irish-run company. In the 1980s and 1990s, its chief executive, Eamon Walsh, was one of the most well-known names in the industry. In the mid-1990s, he was appointed to chair the CIE group.

Hibernian was acquired by the CGU in 1999, but its brand name only disappeared at the end of 2009.

The international group has been performing well, with total operating profit up 5% to £1.377 billion in its 2011 interim results.

In Ireland, the picture is mixed, with non-life struggling, but with both health, and life and pensions having performed well. A market recovery saw a surge in single premiums — this will now be reversed.

Aviva Ireland reported operating profits of €115m in the first half of 2010, compared to €82m the previous year.

Its health business has been a driver. It remains strong despite downward pressure on the health insurance sector generally.

But it is believed that Aviva is not a happy camp. It has experienced high turnover in senior staff, with chiefs executive coming and going, leading to strategic uncertainty.

Aviva Ireland has lost its two heavy hitters, Stuart Purdy and Jim Dowdall, while some say the company is falling between two stools, losing out to FBD in the race for SME business and to AXA and Allianz in the large corporate insurance market.

Aviva Ireland has a competent chief executive in Dermot Browne but it could do worse than go after Oliver Tattan as a high-profile frontman.

In the meantime, Irish employees wait for the axe to drop, wondering whether their jobs will be outsourced at home to specialists Capita or will have to travel much further overseas.