Despite the current hard market conditions in the UK non-life market, the relatively poor medium-term returns available in the sector are likely to deter new entrants, according to a special report by Fitch Ratings.
In the report, 'Risky Business? Prospects for UK Non-Life Insurance', Fitch said that the relatively low level of capital available for acquisition on the balance sheets of acquirers is likely to hinder further consolidation.
Analyst Mark Nicholson said that "a potential major growth opportunity for UK insurers is in cross-selling, which has traditionally been lower than that of continental insurers or UK banks.
"However, rising insurance prices may make customers more willing to shop around and seek the best price, making cross selling more difficult."
Fitch also expects technology, particularly the internet, will be effective in lowering barriers to entry to the market. The increasing commoditisation of insurance products lends itself to selling over the internet, but a major hurdle in taking advantage of this opportunity is the depth of public suspicion.
A recent survey revealed only 19% of people would be comfortable purchasing insurance over the internet.
In the light of the decline in equity returns, Fitch expects a greater focus on sound underwriting performance during 2003.
But unless the recent fall in equity markets leads to a long-term shift by UK insurance companies away from investing in equities, the agency believes that the volatility of the results and shareprices of non-life insurers will remain high compared with most other sectors.
A full copy of the special report is available from the company's web site at www.fitchratings.com.
