Sector’s confidence in stark contrast to outlook for life insurance and financial services
General insurers are enjoying a rebound in confidence in anticipation of firmer rates in 2009, according to a survey on the financial services sector by the CBI and PricewaterhouseCoopers. The sector also feels it is holding up relatively well against challenges in the economic environment, the research found.
Andrew Kail, a partner at PwC, said clients would resist premium increases but insurers would stand firm. “There will be some tension but insurers will win as they will walk away from business if they need to. Of course they can’t afford to walk away from it all, but they will keep to a ‘technical price’,” he said.
The industry was making fewer cost-cutting measures than the rest of the financial services industry, the survey found. The CBI said: “The outlook for investment and spending looks prudent rather than panicked.
“Respondents are planning to invest more in IT, but marketing budgets are being held at 2008 levels and staffing is also anticipated to remain steady.”
The sector’s optimism is in stark contrast to the life insurance and rest of the financial services industry (see chart, below).
Overall, income and profitability levels in the UK financial services sector fell at record rates as the downturn took hold. More than half (59%) of respondents admitted to falling business volumes. Profitability also declined at a record rate, with 55% of firms reporting a fall.
Business volumes in general insurance fell for the third quarter in succession, but to a level considered to be just above normal. Insurers have predicted a rebound in volumes next quarter, the survey said. General insurers were not immune to profit falls – especially in the three months to December 2008, reflecting higher total cost and a large fall in net interest and investment income.
More job losses are expected across the financial services industry. Ian McCaffery, the CBI’s chief economic adviser, said between 12,000 and 15,000 jobs could go this year.