Life and general job losses expected

With the pace of growth in UK financial services continuing to slow in the three months to September, the latest survey from the Confederation of British Industry (CBI) and PricewaterhouseCoopers (PwC) has the following to say about the insurance industry:

Life insurance volumes increased for the seventh consecutive quarter, although the level of business was considered to be below normal.

Average operating costs per transaction fell for the eighth consecutive quarter, and at a much stronger pace than in the last quarter.

As a result, profitability rose “robustly” for the seventh quarter in succession, although a much slower rate of increase is expected next quarter.

Commenting on the life sector, PwC’s UK insurance leader, Mark Stephen, says: “An increase in business volumes and profitability has done little to reassure life insurers as predictions for new business remain low.

“Many expect to see the value of new business fall over the next three months as the economic backdrop puts pressure on the attractiveness of life insurance products.

“To overcome this, the sector is investing heavily in distribution, strategic partnerships and designing new products to boost the sector’s appeal to customers.

“Cost cutting is also taking priority, with operating costs and numbers employed expected to fall further over the next three months.”

Meanwhile, optimism amongst general insurers has plunged at a rate not see since June 2008.

In the last quarter, business volumes declined to well below the norm and profitability decreased for the second quarter running, due to stagnant or declining fees.

Numbers employed also fell, contrary to expectations, and are predicted to dip again next quarter.

Capital expenditure is expected to be flat over the next twelve months.

Mr Stephen comments: “The last quarter has been tough for general insurers as the anticipated improvements in premium income and the much hoped-for rate rises have not materialised.

“This is despite the recent run of natural catastrophes which, combined with the increasing value of claims, has put strain on the sector’s profits.

“A number of lines of general insurance business, including car insurance, remain unprofitable and it remains to be seen whether the Government’s intention to ban referral fees will help reverse this trend.

“Attracting new customers is now the priority and many insurers are looking to reduce their headcount for the first time in over a year.”

The CBI/PwC survey also reveals that insurance brokers are feeling less optimistic for the second quarter running, with business volumes having fallen for the first time since March 2010 and expected to fall again next quarter.

Broker profitability fell for the second consecutive quarter, having put in a robust performance over the previous three quarters, and average operating costs rose sharply, with the trend expected to continue.

Numbers employed fell sharply, with headcount forecasts flat for the next quarter, and brokers are planning to cut back on capital expenditure in the year ahead.

Tags: brokers, CBI/PwC survey, general insurance, profitability, volumes

Category: Employment News, Financials, Life Insurance News