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Aviva, the UK’s largest insurer, will cut 1,800 jobs over the next three years as it looks to rein in costs, reports the Financial Times. The plans to reduce the company’s 30,000 global workforce are being enforced by new chief executive Maurice Tulloch, who wants to decrease Aviva’s annual costs by £300 million ($381 million) a year.
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In addition to job cuts, Tulloch is targeting savings by reining in the insurance firm’s Digital Garage — a stand-alone office that houses Aviva’s digital projects and its £100 million ($127 million) venture capital fund.
Here’s what it means: Aviva’s cost-cutting plans highlight that technology spend is not a panacea on its own.
- The insurance firm is undertaking deep cost cuts in an effort to remain competitive. In recent years, incumbent insurers have faced a slew of business pressures, including growing competitive threats posed by tech-savvy upstarts and shifting consumer demand. Add to this, growing digitization in the industry is redrawing business models: Reinsurers like Munich Re, for instance, are striking partnerships with startups to set themselves up to cut incumbents like Aviva out of the insurance value chain. Aviva’s cost-cutting drive is likely in response to these business pressures as well as its own rising operational costs, which are high in the context of its peers, according to Citi analyst James Shuck, cited by the FT.
- Aviva’s spent big on technology — but the firm’s decision suggests that little has been delivered from it. The insurance firm opened its Digital Garage in an effort to up its innovation and apply emerging technologies to its business. It produced a number of the company’s high-profile initiatives, including the MyAvivia app, a dashboard that allows customers to view all their Aviva products in one digital location and purchase additional services, as well as AvivaPlus, a subscription service that enables customers to pay monthly for vehicle and home insurance and guarantees that existing customers pay the same as new ones. Despite these investments’ importance, Aviva wants to ensure that its tech outlays produce commercial results going forward, according to Tulloch cited by the FT. This highlights a key challenge for incumbents: While they may have vast pools of cash compared with fintech upstarts, they also face significant pressures to deliver returns from those investments.
The bigger picture: Incumbent insurers, like their peers across the rest of financial services, are betting big on technology, but keeping an eye on the end goal is critical.
Insurance companies are continuing their digital transformation at pace, but many are beginning to sharpen their focus.German insurance giant Allianz, for instance, has shifted its Allianz X — its investment business — strategy. Instead of backing early stage startups, the company’s shifted focus to later-stage firms that have sufficient scale to work with Allianz’s existing business.
In the process, the insurer has bolstered Allianz X’s fund to €1 billion ($1.12 billion), with an investment priority on firms that fit its own primary strategic objectives. We anticipate this trend to intensify among incumbents, both within insurance and the wider financial services industry. As legacy providers continue to move beyond initial experimentations and innovation, they’ll be under pressure to invest strategically in technologies that will ultimately benefit their bottom line.
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