Steepest fall in four years
The confidence of the general insurance sector plunged in the last quarter as the impact of the credit crunch deepened, according to a new survey.
General insurers reported the steepest fall in confidence for four years, with the repercussions of the turmoil in the credit markets hitting the sector for the first time, the survey said.
This was accompanied by falling business volumes and profitability, as demand from commercial customers weakened, according to the quarterly financial service survey by the CBI and PricewaterhouseCoopers.
But intense competition and the soft market were still the greatest drag on business volumes for insurers and brokers.
Andrew Kail, UK insurance leader at PWC said: “There has been a stronger downturn in the sector. In the last quarter there were still signs of optimism, but now it is in line with other sectors.
“In contrast to the last quarter, general insurers no longer feel somewhat insulated from the effects of credit crunch. The fall in confidence was the steepest for four years and is accompanied by downbeat responses on volumes, revenues, customer activity and profitability.”
The fall in business volumes was concentrated on industrial and commercial companies and overseas companies, as business to private individuals continued to rise, although at a declining rate.
Kail said: “A re-evaluation of the economic outlook is the most likely cause and maintaining profitability is now the sector’s dominant concern.”
Insurers’ investment intentions for capital and marketing were weaker than in the previous quarter’s survey, although firms continued to take on staff.
A balance of 47% of general insurers reported that they were less confident about overall business prospects, compared to a 12% balance in favour of pessimism in the previous quarter.
Brokers were also more pessimistic, with a balance of 56% saying they were less optimistic about future prospects, compared with an 8% balance last quarter.
Kail said it was expected that the general insurance sector would see job losses, although there have been no large scale redundancies yet. Companies were tightening up their recruitment programmes.
The CBI expects a further 10,000 jobs to be lost from the financial services sector in the next three months.
The sector employs about 1 million workers in the UK.