with Ellen Bennett

Another week, another economic slap in the face. Banks are still failing, markets are still crashing, regulators and governments are still scrambling to shore up capitalism as the world watches incredulous but, this week, something changed. No one expects the credit crunch to end any more, no one but a madman would argue that this was a blip or a “correction”. Instead, there is

a general acceptance that the tough times are here to stay. Last week the CBI warned that thousands more jobs in the financial services sector would disappear in the final quarter of this year.

The turmoil in the markets has spread to the real economy of businesses, consumers and high streets. And insurance has its role to play. As Insurance Times went to press, JJB Sports was reported to be on the verge of collapse because credit insurers were refusing to cover its suppliers (see below right). It will be the first of many.

Other small businesses are feeling the pinch as banks withdraw credit or raise interest rates – and brokers will not be immune.

Expect the banks to continue to scrutinise their insurance businesses as diversification becomes a dirty word (think AIG). With RBS’s share price crashing by one-fifth on Monday, that £7bn it was looking to raise from the sale of its insurance business is looking ever more attractive. But who’s got the money now? Chances are it will have to accept a lower price.

Elsewhere, falling stock markets have had a significant negative impact on insurers’ surpluses, with one report suggesting that up to 30% had been wiped off Aviva’s surplus alone. With vast amounts of cash disappearing into what has become the black hole of the stock market, money will have to be found elsewhere. There will be further cost cutting. Could a hardening market be the silver lining?

Given the state of the economy, controlling claims inflation has become imperative. Congratulations, then, to those insurers that are prepared to take the Scottish government to court if it goes ahead with its preposterous plan to make pleural plaques compensable (see Legal focus, page 19). Whatever the industry’s detractors may claim, it wants to meet its obligations to the victims of terrible asbestos-related diseases, such as mesothelioma, as quickly and fairly as possible. It should not be distracted by irresponsible third parties looking to cash in or politicians hoping to win votes. IT