(Updates with comment on costs in the last paragraph.)
May 29 (Bloomberg) -- American International Group Inc., the largest commercial insurer in the U.S. and Canada, is shifting workers to locations including the Philippines and Texas to reduce costs.
“We’re talking several thousand jobs migrating to these centers,” Peter Hancock, chief executive officer of AIG’s property-casualty business, said yesterday in an investor presentation in New York. “Initially that creates some labor- cost arbitrage, but over time, it gives rise to business process optimization and finally automation.”
AIG is working to improve performance at the property- casualty business. In February, a person familiar with AIG’s plans said the company expected to cut about 1,500 jobs, partly in an effort to reduce management layers. The New York-based insurer had 64,000 employees at the end of 2013.
Hancock didn’t say from where the jobs will move. CEO Robert Benmosche has warned employees against buying homes in the New York area, people familiar with the matter said last year.
“We’re moving people out of some higher-cost cities into those lower-cost cities in America and some offshore as well,” Benmosche said in February in an interview on Bloomberg Television with Betty Liu.
AIG is moving jobs to so-called shared-services centers in locations including Olathe, Kansas; Alpharetta, Georgia; Amarillo, Texas; Bogota, Colombia; Sofia, Bulgaria; the Philippines; and Malaysia, Hancock said.
Moving jobs is “making us best in class in terms of efficiency,” he said at the conference, held by Sanford C. Bernstein & Co.
AIG will probably relocate about 4,000 staff to lower-cost cities by 2015, Josh Stirling, an analyst at Bernstein, said in a May 15 research note, citing a presentation from AIG executives. The insurer is also introducing a new system for managing claims and using additional data in underwriting decisions, he said.
“AIG is making progress fixing what was broken, and in time the company will benefit from the radical simplification of its legacy infrastructure,” Stirling wrote.
AIG had gained 4.8 percent this year through yesterday in New York trading, beating the 3.3 percent advance of the Standard & Poor’s 500 Index.
Hancock said keeping expenses under control can help AIG navigate insurance markets should policy prices decline in a so- called soft market.
“The single biggest weapon for managing a soft market is focus on fixed costs,” he said. “If you have high fixed costs, the temptation is to try and write dumb business to try and cover your cost base, and you’ll regret it later.”