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
Thursday 27 January 1994
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.
Mark Dampier: How to get an income now that savings are past the 'use by' date
Thousands of UK investors could lose out following collapse of Secured Energy Bonds
Bargain Hunter: Fly off for a winter break in France or Portugal for well under £100
Millions in line for compensation after being sold unnecessary credit card cover
Weekly Money: Round-up of the personal finance stories you may have missed 26-30 January
- 1 Three-year-old boy shoots pregnant mother and father in New Mexico
- 2 Stephen Fry explains what he would say if he was 'confronted by God'
- 3 Jewish community urged to boycott Cornwall village after residents vote for 'Hitlers Walk' sign to be reinstated
- 4 Gorillaz Phase 4: Cartoon supergroup is back as new artwork is unveiled
- 5 Benedict Cumberbatch's Alan Turing gay-rights campaign snubbed by Prince William and Kate Middleton
Stephen Fry explains what he would say if he was 'confronted by God'
9 reasons Greece's experiment with the radical left is doomed to failure
The open loathing between Barack Obama and Benjamin Netanyahu just got worse
President Putin is a dangerous psychopath - reason is not going to work with him
Have we reached 'peak food'? Shortages loom as global production rates slow
Britain's widening poverty gap should be causing outrage at the start of the election campaign
iJobs Money & Business
£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...
£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...
£13000 per annum: Recruitment Genius: This Pension Specialist was established ...
£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...
Day In a Page
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion