Aviva's Ambitious Acquisition of RAC Yields Crucial Cost Savings and Cross-Selling Opportunities

Strategic Insights -

Aviva's acquisition of RAC is set to yield significant cost savings and cross-selling opportunities for the insurer. Richard Harvey, Aviva's chief executive, announced the deal yesterday, and the rationale behind it is to tap into RAC's 2.2 million members and 4.5 million corporate roadside assistance customers. The deal will also enable Aviva to offer Norwich Union and RAC motor insurance customers a wider range of services, including breakdown cover, driving lessons, and more. Patrick Snowball, head of general insurance at Aviva, emphasized the importance of customer retention, which he describes as "the holy grail." The first step in making the deal work is achieving the ambitious cost savings of £80 million a year in 2006, partly through cutting 1,700 jobs. Of these, 900 job losses will come from removing duplication in administrative functions, while 800 jobs will be "offshored" – carried out more cheaply overseas.

Key Takeaways:

  • Aviva aims to achieve £80 million in pre-tax cost savings annually by 2006 through the acquisition of RAC.
  • The deal will eliminate 1,700 jobs, with 900 job losses from removing duplication in administrative functions and 800 jobs "offshored" overseas.
  • Aviva will gain access to RAC's 2.2 million members and 4.5 million corporate roadside assistance customers.
  • The insurer will offer Norwich Union and RAC motor insurance customers a wider range of services, including breakdown cover, driving lessons, and more.
  • Aviva targets selling car insurance to an additional 300,000 RAC customers by the end of 2007.
  • The company aims to increase RAC's roadside assistance customer base from 6.7 million to 7.3 million by 2007.
  • Aviva plans to market breakdown cover under both RAC and Norwich Union brands.

Statistics:

  • £1.13 billion: The cost of Aviva's acquisition of RAC.
  • 2.2 million: The number of RAC members Aviva will gain access to.
  • 4.5 million: The number of corporate roadside assistance customers Aviva will gain access to.
  • £80 million: The annual pre-tax cost savings Aviva aims to achieve through the acquisition of RAC.
  • 1,700: The number of jobs to be cut, partly through removing duplication in administrative functions and "offshoring" jobs overseas.
  • 900: The number of job losses resulting from removing duplication in administrative functions.
  • 800: The number of jobs "offshored" overseas.
  • £100 million: The annual profits generated by RAC, with almost nothing coming from financial services.
  • £100 million: The annual profits generated by rival AA from financial services.
  • £450,000: The number of RAC customers who have bought insurance from Aviva.
  • 300,000: The target number of RAC customers Aviva aims to sell insurance to by the end of 2007.
  • 6.7 million: The current number of RAC's roadside assistance customers.
  • 7.3 million: The target number of RAC's roadside assistance customers by 2007.

Sources:

  • Richard Harvey, Norwich Union chief executive
  • Patrick Snowball, head of general insurance at Aviva
  • Mikir Shah at Fox-Pitt, Kelton
  • Roman Cizdyn at Oriel Securities