Bleak outlook will impact on morale

Troubles continue for Benfield, which is expecting year-end profits to decline for the second year in a row, criticism from analysts, and – worryingly – says that 2008 is unlikely to bring about any improvement.

This must have a clear impact on staff morale: 2008 has not even begun, yet the company has already admitted that times will be hard.

It is possible that disillusioned staff could leave for greener pastures. Star performers could be groomed by other brokers and won over with promises of greater salaries, bonuses and prospects. But any departure of high-level executives – people the company needs to hold on to – could severely cripple the business.

One possibility – and something that Marsh has already acted upon – is for Benfield to outsource its back office, in a bid to reduce operational costs. Marsh has both Capita and Xchanging in its Norwich office at the moment, with both firms competing for a contract to provide services.

This approach may appeal to Benfield because, in a similar way to Marsh, it relies heavily on dollar revenues – meaning that the comparative high cost of the pound makes UK staff comparatively expensive.

But going back to the morale point – outsourcing tends to mean staff losses, which may well cause even greater upset.