THE ROMANS named Ireland Hibernia after the Latin word hibernus meaning “wintry”.

There was certainly a chill in Hibernian’s offices in Dublin, Cork and Galway on Monday when the company told its 2,200 staff that Ireland’s biggest insurer would no longer be exclusively based on this island. The company informed staff that it would be cutting 580 jobs – more than one-quarter of its workforce – over three years and moving the positions to a lower cost operation in Bangalore, India.

The announcement left staff startled and worried. Trade union Unite, which represents Hibernian staff, said the anger expressed by staff afterwards “could best be described as a red mist”.

Staff in the union have already balloted to vote for industrial action and have also passed a motion of no confidence in the company’s management.

Bangalore is where Hibernian’s parent company, UK insurer Aviva, set up an operation in 2004 and has already “outsourced” business from operations in UK and Canada.

Aviva has said the group stands to make cost savings of up to 40 per cent by moving parts of its business to India. The company’s UK operation has said it expects to make between 1,500 and 1,800 people redundant from a staff of 18,000 people in further cuts as it moves more jobs to India.

Hibernian expects to make cost savings of between 50 and 70 per cent on its Irish wage bill by the end of its three-year restructuring programme, bringing its workforce down to 1,600. Most of the jobs will be transferred from its relatively new head office building on Hatch Street in Dublin city centre.

The first 80 jobs will go in the first three months of next year.

The company will retain its call centre in Galway and its office in Cork and there will be no material change in its workforce in either city. Equally, no changes are planned for the 27 branches around the country.

Stuart Purdy, group chief executive of Hibernian, is spearheading the plan, which the company started devising nine months ago, before the current economic downturn, but at a time when premium income and life assurance sales were coming under pressure.

Mr Purdy has first-hand know-ledge of the Indian market, having worked for Aviva’s operations in India between 2000 and 2006.

“We do not see that this plan will dilute the strength of our Irish business – we would see it enhance our Irish business,” he said.

For Mr Purdy, it’s all about streamlining the company so its costs remains lean, while trying to fight the slump in income and profit. Premium income in Hibernian’s general insurance division fell from €790 million in 2006 to €717 million in 2007. This is expected to drop further given that premiums have not yet increased across the industry.

While premiums have been falling, costs on the general insurance side of the business have risen 5-10 per cent. Life assurance sales are down 23 per cent this year, putting Hibernian’s interest margin under further pressure.

As income fell, costs across the entire business increased 18 per cent to €218.4 million in 2007.

Hibernian’s 1.4 per cent life business margin is already the lowest of any country in the Aviva group and costs in the life business have risen 11-15 per cent.

The growth of Aviva’s Indian operation has been staggering. The insurer’s Indian staff has risen from 4,500 to 7,800 in three years. Hibernian sees major value in transferring back-office and support services jobs.

The highest-paid position that will move from the Irish operation is the post of team leader in Hibernian’s back-office administration, with a salary of €45,000. The lowest is about €25,000.

In India, these same positions will pay between €7,500 and €13,500. The savings are obvious.

Unite national officer Jerry Shanahan has cited a Scottish academic who said wage inflation in India has already reduced the potential saving to 25 per cent.

Mr Purdy acknowledges wages have risen by up to 15 per cent in India over the last year but says there are still savings to be made. “It is true to say that wage inflation is higher, but it is starting from a much lower base,” he said.

Of 60 points of customer contact in Hibernian’s general insurance business, fewer than 10 will move to India, so, for example, customers who are changing their address on their motor policy or who have a straightforward claim, will be dealt with by a worker in India. More complex queries such as disputed insurance claims will continue to be handled by Hibernian’s call centre in Galway.

Hibernian contends that no employee will lose their job as the cuts will be made over three years through annual staff turnover, which accounts for up to 15 per cent in some departments, though it acknowledges that as the economic situation worsens, the numbers leaving every year will fall.

“Even if the attrition rate falls to half its current level, we could achieve the turnover needed. I don’t think attrition will go to zero,” said Mr Purdy.

John Staunton, head of outsourcing at consultancy firm Accenture, says Irish businesses have to become more competitive on costs in the current economic climate, though Irish firms are still behind in outsourcing: “It is at an early stage of development but we are seeing a greater uptake of outsourced services.”

He cited a report by research company IDC which showed 80 per cent of Irish companies were using one or more outsourced or managed services. He said firms needed to outsource as they were competing with global businesses with operations in low-cost countries.

Mr Purdy believes other companies will transfer parts of their businesses to low-cost countries to maintain a competitive edge.

“It is something that is likely to continue and Ireland is not immune from the same competitive measures as other countries.”