Brokers report low profitability and gloomy prospects in CBI survey

The overall profitability of brokers fell in the last quarter of 2003 at the fastest rate for eight years, according to a new report.

The quarterly Financial Services Survey, conducted in late 2003 by the Confeder-ation of British Industry (CBI) and Pricewaterhouse-Coopers (PWC), found that business volumes in the last quarter declined more quickly than brokers had expected.

Insurers and brokers surveyed said a rise in total operating costs, as a result of rising staff costs, and a fall in both commission and investment income, led to the fall in overall profitability.

Profitability is expected to fall even further in the first quarter of 2004.

Brokers listed demand and competition as the two factors most likely to limit their ability to increase levels of business over the next year.

The survey found that both brokers and general insurers were less optimistic about the business outlook than the rest of the financial services sector.

"Only the general insurance industry and the insurance brokers remain a little bit downbeat," said CBI chief economist Ian McCafferty.

The survey revealed that the expectations of general insurers regarding business volumes and profitability remained flat on the previous three months.

Domestic competition rated as the only significant factor likely to constrain business prospects.

"The sector is pretty flat on optimism, volumes and expectations of profitability," said PWC partner Ian Dilks.

Despite making the sharpest job cuts since 1989 in the last three months of 2003, insurers failed to reduce overall costs, as the value of claims continues to rise.

Dilks described the increase in claims costs as the "continuation of a trend, rather than a significant shift".