Questions from the CBI to BIBA regarding “State of Trade”
9th November 2009
BIBA has conducted research with its members and is delighted to submit its Q4 state of trade report to the Confederation of British Industry.
1. General Activity
What has been the trend in activity in your sector in terms of both demand and output?
Demand is still low due to some clients going out of business and downscaling and a lower budget for their Insurance Portfolio.
The Insurance market is still competitive retaining plenty of capacity. Members continue to see a decline in growth from customers with a corresponding fall in income. Revenues continue to be affected by attrition due to continuing rate reductions and reduced turnover from clients together with pressure on Insurance brokers fee and commission levels.
Clients continue to shop around extensively meaning more activity for less return.
2. Stock levels
What has been the trend in stocks in your sector in recent months? Are stock holdings too high relative to current demand?
The clients of insurance brokers are retaining only minimal stocks and the subsequent insurance premiums are therefore lower.
3. Credit and finance
a) Have businesses in your sector experienced any loosening of credit conditions in recent months?
Credit continues to be tight with very few signs of any loosening of credit conditions.
b) To what extent is the lack of Trade Credit Insurance cover constraining business in your sector?
Trade credit insurance sales continue to be at a very low ebb and the Government Top Up scheme has resolved less than 100 policies and expires in December 2009. Trade credit insurers continue to be risk averse and clients are now often self insuring. We consider the Trade Credit market to be in a critical condition.
We are seeing signs of capacity starting to return to the market, however, this is extremely limited and is not because capacity is being increased, but more because it has become available due to the substantial culling of cover over the past 12 months. Cover is still being withdrawn if financial information gets out of date but we are not seeing wholesale withdrawals in tranches as we have experienced in previous months. It is still very difficult depending upon the trade sector.
Credit insurers have lost so much business now to self-insurance that they are being forced to look at difficult credit limits but only when the policy comes up for renewal (which is too late) and only if the company is paying above a certain amount in premium.
New business is still very difficult especially if in the wrong trade sector but we are seeing more hunger for cases they want but they are still being very selective. BIBA’s members believe to answer 3a & 3b if the banks and credit insurers are going to lend or provide cover which is tight, they will do this for Middle market & large groups rather than SME (companies less likely to fail), which doesn’t bode well for the future of the SME market and BIBA’s members think they still have very difficult times ahead.
4. Labour market
What has been the trend in employment in your sector over recent months and how do you see the outlook over the months ahead?
Redundancies and downsizing of the insurance Companies staff and some brokers staff continues.
5. What are your trade association’s top three policy issues (excluding economic climate)?
Our top four policy issues are:
1. Future Regulatory Regime
Political pressures indicate that our current regulator the Financial Services Authority (FSA) may cease to exist. The Conservatives have proposed two regulators take their place the Bank of England for prudential and a new Consumer Protection Agency for the conduct of business. BIBA believe Insurance brokers present NO system risk and we are concerned a new regulatory regime could lead to increased costs, an unlevel playing field and could see our low risk sector again being shoe-horned in with inappropriate, disproportionate regulation. This concern also extend to any new Financial Services Compensation Scheme.
2. Review of the Insurance Mediation Directive
This European Directive lays down the framework of regulation for our members and is currently under review. We are anxious to ensure ‘IMD 2’ gives UK insurance brokers a level playing field across the UK and Europe.
3. Electronic Delivery of Motor Insurance Certificates
The post strike has highlighted the need for the swift introduction of these new regulations promised by the Government. BIBA are very keen for the Department of Transport lawyers to introduce their new regulations which will save customers and our profession time and money as well as the environmental benefits that result from 40 million fewer pieces of paper being produced and delivered.
4. Signposting and Access to Suitable Insurance Protection
Commoditisation and the internet have lead to consumer detriment in areas of insufficient cover, or people going uninsured. We are supportive of the OFT investigation into Advertising and Pricing of internet sale and comparison sites, were policy excesses are unclear and prices inaccurate in many cases. We believe a signposting system should be utilised to help customers access cover for non standard risks. The Government bills that would assist are the Equality Bill and the Flood and Water Management Bill. However, time is running out and we are very keen to see their introduction before a general election.
Graeme Trudgill ACII
Technical and Corporate Affairs Executive
Direct Tel: 020 7397 0218
Direct Fax: 020 7626 9676