Financial Services: Seeds of doubt sown by sceptics: Paul Gosling examines a report which suggests that financial services may not be the growth industry this decade that it was in the 1980s

The latest quarterly survey conducted jointly by the CBI and Coopers & Lybrand shows a healthy increase in profits and optimism in the financial services sector. While employers are still shedding staff at a high rate, job losses could begin to level off in most parts of the sector, with only the banks increasing the pace of labour cuts.

Staff costs have now dropped to the lowest proportion of total costs since the survey originated, five years ago. Meanwhile, income from fees, commissions and premiums rose at its highest rate.

Sudhir Junankar, the CBI's deputy director of economic affairs, says that most of the job losses in recent years stemmed from the failure of companies to cut back on labour sooner, despite heavy investment in information technology. Most parts of the financial services sector have now come to terms with that fact, although 'insurance companies may have yet to deal with these changes'.

According to the CBI survey, British financial services firms now regard themselves as better able to withstand increased competition from European and non-European entrants to the UK market. Other analysts forecast a less buoyant future, though.

A recent report, A Reversal of Fortune?, written for South East Economic Development Strategy (Seeds) by Andrew Leyshon and Marion Justice of Hull University and Nigel Thrift of Bristol University, argues that the numbers employed in the financial services sector will continue to decline, with too many companies fighting for too little business.

The Seeds report suggests that there are deep-seated trends which mean, says Mr Thrift, that 'financial services is not, on the whole, going to be the growth industry in the 90s that it was in the 80s'.

The report points to demographic trends working against the interests of the industry. As the population gets older there will be fewer sales of life insurance policies, pensions and mortgages, for example. Meanwhile, as more younger adults choose the single life, they will be less likely to purchase life insurance.

Meanwhile, the number of European entrants into the UK market will severely damage British businesses. The long-term decline in jobs in the financial services sector has, so far, been mitigated by new entrants to the market. The shake- out in the sector will take several years to unfold, and the end result will be a smaller sector, with fewer employees, suggests Seeds.

What has been particularly damaging to the insurance sector is that high claims, caused by the industrial and property recession and bad weather, have coincided with a period of low margins because of incoming competition, and a consequent decline in underwriting standards. An increasingly assertive and litigious population has also driven up claims levels.

The Seeds report expects many companies to concentrate increasingly on their most profitable activities, leaving marginal communities without any financial service provision. Mr Thrift says: 'The financial services industry is under pressure, and this could cause problems for many people served by it. We are concerned that it could roll back into its heartland of the middle classes, focusing on operations where there are substantial profits. Certain sections will find it increasingly difficult to obtain financial services.'

The growth in telephone banking and direct insurance, where well- off customers are targeted with cheaper services, can be seen as a trend that will be copied across the financial services sector. While Mr Thrift declines to predict that Britain will become like the United States, where poorer areas are uninsurable, he says that it is a possible outcome. Mr Thrift adds that already the effect of upward pricing for high-risk groups is encouraging many people to reduce their insurance cover.

Mr Thrift says the report simply reflects the mood of the industry itself. 'It is difficult to see where growth will mostly come from. I don't see how one can avoid being pessimistic.'

Angus Hislop, partner in the financial services and city office of Coopers & Lybrand, takes on board some of the arguments of the Seeds report, but sees the picture more positively. He says: 'If you are an employee you may not be optimistic, but if you are a shareholder perhaps you have reason to be.'

Mr Hislop believes that insurers, in particular, face a tough time. 'The next few years on the life insurance market will be full of turmoil, with the increase in the numbers of people selling products, insurers selling directly, banks and IFAs.' New disclosure requirements will also make the market highly uncertain, he says.

He sees the longer-term prospects in much more rosy terms. 'There is a need for life insurance, and penetration is not particularly high by American, Swiss or German standards,' he argues. 'Not all the players will survive though, because of the need for more investment. Some at the margins will decide it is not worth it. Banks and building societies like the Halifax will be big players, and their impact will be pretty substantial.'

Unlike the Thrift report, Coopers & Lybrand sees changing demography to be a positive factor on the life insurance market over the next 5 to 10 years. Analysis of policy sales, says Mr Hislop, shows the 45-to-55 age group to be the leading purchasers, and they will increase in number over the next decade.

Mr Hislop accepts that companies will retreat to activities of highest profit, but believes that, at least in the long term, this will not exclude any sections of the population. 'In the short term, people could start to withdraw from certain communities, but that makes opportunities for others, who will come in with new cost structures.' New direct insurance operations, targeting high-risk customers, are being established, he points out. 'Given time in a free market I don't see why anyone should miss out.'

The Banking, Insurance and Finance Union (Bifu) has been vigorously complaining about job losses in the financial services sector, and might be expected to share the concerns of the Seeds researchers. Instead, Bifu agrees with the CBI's outlook, of higher profits, and long- term health, although expecting further job losses, especially in banking and insurance.

(Photograph omitted)

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Sales Executive / Foreign Exchange Dealer - OTE £40,000+

    £16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...

    SThree: Experienced Recruitment Consultant

    £20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

    Recruitment Genius: Collections Agent

    £14000 - £16000 per annum: Recruitment Genius: This company was established in...

    Day In a Page

    The long walk west: they fled war in Syria, only to get held up in Hungary – now hundreds of refugees have set off on foot for Austria

    They fled war in Syria...

    ...only to get stuck and sidetracked in Hungary
    From The Prisoner to Mad Men, elaborate title sequences are one of the keys to a great TV series

    Title sequences: From The Prisoner to Mad Men

    Elaborate title sequences are one of the keys to a great TV series. But why does the art form have such a chequered history?
    Giorgio Armani Beauty's fabric-inspired foundations: Get back to basics this autumn

    Giorgio Armani Beauty's foundations

    Sumptuous fabrics meet luscious cosmetics for this elegant look
    From stowaways to Operation Stack: Life in a transcontinental lorry cab

    Life from the inside of a trucker's cab

    From stowaways to Operation Stack, it's a challenging time to be a trucker heading to and from the Continent
    Kelis interview: The songwriter and sauce-maker on cooking for Pharrell and crying over potatoes

    Kelis interview

    The singer and sauce-maker on cooking for Pharrell
    Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

    Cameron lowered the flag for the dead king of Saudi Arabia...

    But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Humanity must be at the heart of politics, says Jeremy Corbyn
    Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

    Joe Biden's 'tease tour'

    Could the US Vice-President be testing the water for a presidential run?
    Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

    Britain's 24-hour culture

    With the 'leisured society' a distant dream we're working longer and less regular hours than ever
    Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

    The addictive nature of Diplomacy

    Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
    Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

    Fashion: Ooh, Lady Chatterley!

    Take inspiration from DH Lawrence's racy tome with equally racy underwear
    8 best children's clocks

    Tick-tock: 8 best children's clocks

    Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
    Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

    Charlie Austin: ‘If the move is not right, I’m not going’

    After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
    Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

    How Isis profits from destruction of antiquities

    Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
    Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

    'If we lose touch we’ll end up with two decades of the Tories'

    In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea