The past year has been a rollercoaster ride for the economy, but will the industry avoid a double dip in the year ahead
Taking a look back over 2009 is like rifling through an old address book. There are names of people who have drifted away, changed address, those who are gone but not forgotten, and others who bring back both fond and bad memories in equal measure. However, there are many who might just get a surprise Christmas message and an offer of a drink in 2010.
Because, nostalgia aside, 2009 is one of those years which revisionists will refer to as a transitional time for the majority of UK businesses. Call it ‘economic correction’ if you like, but this is a worldwide recession, with the fallout from the Lehman Brothers, RBS and AIG debacles pouring cold water on the excessive borrowing and cheap money culture.
This will have ramifications for at least another 18 months on any growth, but we will be paying out taxes probably for the next 5-10 years to make back the difference.
It has obviously dampened the ardour of the consolidators in the broking community this year, where the ‘multi-multiples’ acquisitions are not feasible. Covenant breaches on debt defined the first part of 2009, and in 2010 the race will be on to find sustainable refinancing agreements. Unless you are a broker and an insurer lends you some cash. Many will try to get their money out, but at what cost?
So, as 2009 draws to a close, what does 2010 hold in store for the insurance community? Here are a few thoughts:
Will the acquirors become the victims?
The big three brokers, which are devoid of organic growth, will start to utilise cash and should use it to mop up many of the consolidators. We should still see more general consolidation across the market. But will private equity houses get back enough to justify further investments? Buying intellectual property, namely top-quality people, will remain the thrust for those trying to take the edge off their competitors next year – particularly individuals with real substance and not card-carrying members of the strategic waffle gang!
Who will be the regulator?
If the polls are correct, then a change of government is on its way in 2010. Is the public learning to love the Tories again? They have made it clear that the FSA is a defunct institution and that financial services regulation will return to the Bank of England or the Consumer Protection Agency.
However, Lord Turner has obviously motivated his staff in Canary Wharf and retracted the phrase ‘lighter touch regulation’ from the regulator’s lexicon. The FSA will be looking to show what teeth it has are sharp and will be used, so some examples may be made during the early part of 2010. How effective a consumer protection panel would be as a replacement for the FSA is debatable but, again, it is not where the regulator sits which is the issue, but who is in the chair.
Commercial internet purchasing habits – will the model truly prevail?
At some point soon, the public will buy commercial lines insurance from a machine to a certain level. The question is: what do they want? Likely a cheap price; clarity of proposition; ease of access; claims certainty; and a first-class service, which the consumer has learnt to expect from the online personal lines providers.
And lastly the insurers. Will they consolidate further?
Who has the appetite to swallow RBSI? Is an IPO just a dream? Can insurers really increase efficiency and eradicate the problems surrounding certain claims practices? More importantly will they stop slitting their own throats? Will we also face in 2010 the major catastrophe that people say is the only thing that can harden the market?
Overall, the first quarter of 2010 will be better than anything in 2009. But the recession is not over, and the rollercoaster that is UK plc could still take a double dip, even though last week signs were showing a better last quarter than predicted. Were any real economic gains made from new business generated or is this just the cost-cutting exercises slowly paying short-term dividends?
For the healthier businesses though, snap up the bargains in the Christmas rush! IT
Adrian Colosso is chief executive of Heath Lambert.