Two major Scottish employers shedding many hundreds of jobs must take care

City analysts appear to consider it a good deal for Aviva.

And Matt Britzman, senior equity analyst at stockbroker Hargreaves Lansdown, hailed it as “Christmas come early” for Direct Line investors when the deal was unveiled last Monday.

The business now called Aviva was formed with the merger of CGU and Norwich Union in May 2000. This deal created CGNU, which was renamed Aviva in 2002. CGU had been formed by the merger of Perth-based General Accident with Commercial Union in February 1998.

Aviva still employs about 1,100 staff in Perth, as well as around 1,000 people at Maxim Park near Glasgow.

Direct Line was founded by Sir Peter Wood in 1985. The business, which now also includes Churchill and Green Flag, was under Royal Bank of Scotland’s ownership for many years before being spun out of the institution in 2012.

A quip from Sir Peter highlighting the value he created for Royal Bank of Scotland – made back in 2002 when he was announcing 300 more jobs in Glasgow for the esure business he was at that time building for banking group HBOS – was memorable.

He declared that a plaque in Direct Line’s Glasgow office referring to him opening it had been taken down.

Sir Peter, always a fascinating character to interview with a track record of providing material for acres of copy in a matter of minutes, said: “’I made Royal Bank £3bn and they have taken my plaque down. How petty can you get? They ought to have put a statue of me in St Andrew Square [site of Royal Bank’s head office]. No way would they have been able to buy NatWest [without Direct Line].”

Read more

He said then that he had calculated his £3bn valuation of Direct Line with reference to its profits in the previous financial year and a typical price-to-earnings multiple.

Interestingly, his valuation is not a million miles away from what Aviva is paying for Direct Line, which has not had its troubles to seek in recent times with a major loss of motor insurance customers on the back of hikes in the prices of its policies.

Much has changed of course since 2002.

Royal Bank’s integration of the NatWest business it bought in early 2000, after a hostile takeover battle with Bank of Scotland for the “big four” UK player, was highly successful.

However, Royal Bank required a UK taxpayer bailout of tens of billions of pounds after the global financial crisis took a lurch for the worse in autumn 2008.

By the time Direct Line was floated in 2012, Royal Bank was majority-owned by the state. The bank, renamed NatWest Group at parent company level in 2020, has in recent times managed to reduce the UK taxpayer stake very significantly, to 11.34% by November 11 this year from as high as 84.9% in the wake of the bailout.

Direct Line still has a strong Scottish presence, with its major operation in Glasgow and a total workforce in Scotland of around 1,000 early this year.

Read more

Staff of Aviva and Direct Line in Scotland, and elsewhere, will now have to wait and see how the acquirer’s plans to extract £125 million of annual pre-tax cost savings within three years play out.

Aviva and Direct Line flagged a reduction of 5% to 7% in the combined workforce over three years.

This planned reduction equates to approximately 1,650 to 2,300 jobs in total, based on respective staff numbers of around 23,000 and 10,100 for Aviva and Direct Line at their last annual report dates.

However, it is believed Aviva currently has around 800 vacancies, and a natural attrition rate of staff of approximately 1,200 per annum, which could mitigate the effect of the job losses for the workforce.

Hopefully, Aviva will undertake the integration in a way which minimises compulsory redundancies across the board.

And hopefully the very valuable employment provided by both insurers in Scotland for so long can be preserved on a similar scale to that currently.

Danuta Gray said as the deal was announced that the Direct Line operation which she chairs is “a high-quality business with powerful insurance brands, excellent customer focus, and exceptional people”.

Dame Amanda Blanc, Aviva’s group chief executive officer, pledged that customer service would “remain a top priority” after the deal.

In any large-scale integration, there is always a danger customer service could be affected.

The key to maintaining it lies in ensuring stability, and not throwing everything up in the air and leaving it to chance how it lands, when extracting cost savings.

Aviva and Direct Line are operating in a highly competitive market, populated by traditional players which have embraced the online arena and newer entrants.

Price will, of course, dictate in large part people’s insurance choices, especially given the popularity of comparison sites.

However, many people will be willing to pay a little bit more, within reason, if they are confident they will be able to speak to someone easily at their insurer if they need to do so.

Aviva should keep this, and the importance of customer service highlighted by Dame Amanda herself, in mind as it proceeds with its integration of Direct Line.