BIBA’s state of trade report to the Confederation of British Industry (CBI)
2nd July 2009
BIBA has conducted research with its members and is delighted to submit its first state of trade report to the Confederation of British Industry.
The insurance broking sector has not suffered the same dramatic problems from the economic crisis as seen in other areas of financial services and remains one of the most reliable areas of the financial services sector, however insurance brokers rely on their clients for income and BIBA’s members are reporting an overall reduction in income due to the hardships their clients are facing. Members are pessimistic about this and there has been some consolidation amongst them although this has slowed due to the reduction in availability of credit.
1. General Activity
What has been the trend in activity in your sector in terms of both demand and output?
Demand has generally reduced due to some clients going out of business, others having reduced activity/stock/payroll resulting in reduction in premiums and in some cases cutting back insurance covers.
The Insurance market is very competitive with plenty of capacity. Members have seen a decline in growth and a fall in income. Generally revenues have been affected by attrition due to continuing rate reductions and reduced turnover from clients.
Clients are shopping around more which all in all combined with the increased cost of trading (Increased cost of regulation, reduction in internet income) has resulted in more activity for less return. There have been reductions in the levels of material damage cover and reducing cover on contractor’s plant. The trend is for a higher level of self insurance generally.
BIBA’s research shows that 52% of BIBA brokers have seen commercial customers reduce their level of insurance protection. Including:
45% have seen clients reduce what they see as, non essential cover or take on more risk themselves.
40% have seen clients reduce estimates for turnover or wage
23% of brokers responding to our survey have seen their personal lines customers reduce their level of insurance protection
29% of brokers have seen a reduction in non-essential cover and add ons for personal lines business
16% of customers have seen personal lines customers reducing their sums insured
2. Credit conditions
Has your sector experienced a tightening of credit conditions? If so, has it affected investment plans?
Opportunities for growth have been restricted by credit controls and members have adjusted their financial business planning to reflect this situation.
Acquisitive members have had to scale back on their level of acquisitions (of other brokers)
Clients of brokers are definitely having problems in obtaining credit
Payment defaults have started to increase – which has resulted in an increased activity in the premium finance areas, some seeing a 50% increase in take up.
Debt ratios have increased significantly in the premium finance market, which together with the lending issues, has put up the price of credit for clients but ironically, this provides an improved trading arena for brokers when insurance itself is more difficult.
Insurers have tightened up on credit control which in turn means that insurance brokers are having to collect money faster or arrange premium finance to remove the credit risk from brokers.
3. Labour market
a. What has been the trend in employment in your sector over recent months and how do you see the outlook over the months ahead?
We have seen a raft of redundancies and downsizing of the larger insurance companies staff and, with less opportunity for career progression and development for many quality professional employees in the sector, leading to a lack of confidence in their long term stability within the industry as well reduced levels of service.
Some members are looking at the larger pool of unemployed experienced insurance staff to take on and to evolve a stronger workforce in the face of increased competition.
Generally our members believe the situation will get worse before it starts to improve.
b. What has been the trend in wages/salaries in recent months and how do you see the outlook in the months ahead?
Wage increases are very much out of the question as many firms struggle to find ways to reduce overheads and maintain competitiveness within the markets.
Wages therefore continue to remain flat and a wage freeze will continue for the foreseeable future from the majority of firms.
4. Inflationary pressure
Has there been a reduction in the prices charged by your members in recent months?
There is a system of dual pricing from insurers with new business prices much more aggressive and lower than those offered for renewal. This can be frustrating for brokers and inevitably they will rebroke these risks. So ultimately customers are paying lower premiums.
Reduced premiums mean reduced commission for our members, although some work on a fee basis, nevertheless fees are also under pressure and are often being negotiated down in many cases in order to win or retain the business.
The insurance industry has been talking about prices increases due to loss of investment income, however, due to the availability of capacity, price reductions are the norm. Certain poorly performing sectors like solicitor’s professional indemnity and motor insurance are seeing increases though.
5. What are your trade association’s top three policy issues (excluding economic climate)?
(1) Access to Insurance BIBA is dealing with this under two main areas:
a) The Equality Bill – ensuring customers know they can access insurance from a broker irrespective of their age; BIBA is looking to develop a signposting system to direct uninsured older customers to brokers who can help them.
b) The Flood and Water management Bill – Massive change and investment is needed from government in order to ensure the safeguarding of UK properties and therefore the continued provision of property insurance for flood prone properties.
(2) Understanding the value of Advice
BIBA believes that good advice is an important element in ensuring the correct cover. This is much more than simply providing information. BIBA is also calling for change to the way insurance is sold via the internet, particularly through comparison websites where the client should receive clear facts on what they are and are not covered for and guaranteed quotes.
(3) Review of Financial services Funding Scheme (FSCS) funding model
UK Insurance brokers can be subject to a levy to contribute towards compensating the customers of failed banks. The UK is the only EU member state where such a practice exists. We believe this to be unfair and will work to seek a review of the funding model.
Thank you for taking the time to read BIBA’s response please don’t hesitate to contact me for any further details.
Graeme Trudgill ACII
Technical and Corporate Affairs Executive
Direct Tel: 020 7397 0218
Direct Fax: 020 7626 9676