The UK insurance industry has reacted to the credit crunch by axing 2,700 jobs within the next few weeks. Analysts warned that thousands more could follow in the first sign that the economic slowdown has hit the market.

Aviva-owned Norwich Union announced plans to slash its workforce by up to 1,800 by 2010, while Zurich announced that up to 900 jobs could go by the end of the year.

Ian Clark, insurance partner at Deloitte, said: “Businesses are governed by the state of the economy. You have still got declining rates in most lines of business, and one insurer alone can’t turn the market cycle. So if they are going to maintain profitability, they have got to look at their cost base.”

Clark added that any of the major insurers with high head counts could follow Zurich and NU in slashing jobs.

In a report released this week, KPMG predicted that the UK market would see many more restructurings in the months ahead.

John Kitson, sales and marketing director for NU, said the cuts could amount to at least 10% of the insurer’s UK workforce.

He said: “To stay as number one in a massively competitive, fast-changing market, incremental changes are no longer sufficient and we have to do transformational changes. Therefore what we’re announcing is a transformational change in our operating model to keep us as number one into 2011 and beyond. We take great care on that.”

Guy Munnoch, chief executive of Zurich UK general insurance, could not say which areas the job cuts would affect. “We are at the start of the process. We aim to move quickly,” he said.

He added that the company was also considering whether to close some of its offices: “We are looking at our premises strategy, but have made no decisions yet.”

Simon Cooter, Brit’s distribution director, said: “At a time when industry service levels are stretched anyway, many brokers will be concerned about any major reorganisation.

“In my view it is almost impossible to make major changes, especially those that involve significant job cuts, without service being affected.”