It has taken this market until the half way point in the year to finally acknowledge that it needs to batten down the hatches and prepare for the downpour from the economic storm clouds gathering over UK business. There has been a clue of course in the shape of cost cutting and redundancies at major insurers over the past month, but the sentiment is best articulated in a joint PWC/CBI report this week. Brokers and insurers are the most downbeat they have been “in years”, it claims as the illusion of insulation from the wider economic climate that the insurance cycle has maintained has all but evaporated. A cold reality is now dawning on the market. The thorny issue of growth has been superseding this debate. Brokers are reporting negative trends in revenues across all business segments and recoiling from the insurers' cost-cutting pens. And insurers too are facing costs from the implementation of Solvency II. Consolidation, aside from the chosen few, has all but dried up as the favourable tax loophole deadlines came and passed. And the financial results of the big private players, backed by private equity capital, are coming under increasing scrutiny. This shift in perception accompanied by the inevitable downturn, will translate to all players in the insurance community becoming more dependent on their reputation to do good business and their relationships with clients and partners. In the meantime, the key question is likely to remain, just how bad will it get?
Sir Michael Pitt gave the insurance industry a relatively clean bill of health last week in his assessment of the aftermath of the 2007 summer floods. Despite constant press briefings from government spin doctors about how ministers have held insurers to account over their performance, the market can be relatively content. This comes against a backdrop of nearly all but a few hundred of the thousands left homeless now out being out of temporary accommodation. So as the ABI enters into the final negotiations with the government over flood defence spending versus the insurer’s appetite to insure flood risk areas it could not be in a better position. Let’s just hope it gets the deal that the industry wants and more importantly deserves.