According to the latest CBI/PwC Financial Services Survey, optimism, confidence and overall business volumes in the UK life insurance sector rose strongly over the past three months to its highest level since the Retail Distribution Review (RDR) was introduced last year. Operating and marketing costs are increasing as firms relax into this growth and yet profitability is increasing. Headcount increased as life companies prepared for growth. General insurers saw business volumes and profitability rise, although remains cautious in its spending. Insurance brokers saw business volumes increase, while profitability fell due to increase costs, although this is expected to recover in the next quarter.
Jonathan Howe, PwC’s UK insurance leader, comments “It’s a really positive review for life insurers. Optimism is at a high, and they have seen a large upsurge in business volumes for a second successive quarter. Confidence is now at the highest level since the introduction of Retail Distribution Review(RDR) one year ago.
Profitability started to grow again, and despite growing marketing and operating costs growth is expected to continue into the next quarter. Headcount increased at a much stronger rate than expected, although many see the scarcity of professional staff as a barrier to growth. This is reflective of the introduction of the new separate regulators driving the need for staff with different skill sets to manage each and the upcoming Solvency II deadlines. Intelligent recruitment will be a key item on Board agendas. Increased investment in IT supports the positivity, as life insurers recognise upgraded systems are crucial for growth in a post-RDR world.
General insurers are enjoying a more gentle upwards curve. There has been a gradual recovery in confidence and they are starting to make some considered investments. Business volumes continue to grow and there’s no suggestion that this will falter. It’s certainly promising to see that personal lines are finally showing signs of growth after several quarters of falling or flat activity.
Profitability rose at its fastest rate since March 2008, boosted by higher fee and premium income and a fall in claims costs, although the industry still expects the cost of claims to increase over the next year. The sector remains focused on cost control and headcount, reflecting caution over new entrants and increased competition. IT and compliance will no doubt drive investment, to avoid aging systems and to cope with increased regulatory pressures and the revival of Solvency II."
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