Insurers will have to come out of the closet

COMMENT: 'With between 80 and 100 active life companies, the UK sector still presents an absurdly fragmented picture by international standards'

There is scarcely an industry in the land that has not been affected by the present worldwide urge to merge, cut costs, rationalise and empire- build. One of the few which has so far largely escaped the trend is the insurance sector. It is hard to explain why, for this is an industry that cries out for it as no other. The potential for cost-cutting mergers is seemingly endless, as is the scope for modernisation. But if the industry's deeply conservative roots have so far held it back, things look like changing fast. Insurance companies are in the process of being rudely awakened. Their world, for so long dependable and closeted to the point that it had become hidebound, is being torn apart by competitive forces, regulatory pressures and changing investment patterns.

The days when the good old British insurance company could open for business at the beginning of January each year, wait for the premiums to flood in, invest the money and pay out the claims, are gone forever. In the life sector, tax changes, attractive alternative saving vehicles, enhanced competition from banks and building societies, the rising cost of regulation training and expensive new information technology is forcing a big rethink. Most of the large mutuals, accepting that they cannot continue as they are, are taking expert advice about where to go.

With between 80 to 100 active life companies, the sector still presents an absurdly fragmented picture by international standards. The pressure for mergers and de-mutualisation, and in some cases of takeover by the big composite insurers, is becoming hard to resist.

Even among the general insurers, reeling from their competitive drubbing at the hands of the direct insurers, Britain is remarkable for its lack of companies big enough to punch at a world-class level. This is well known to be a source of concern in the DTI. Next to such giants as Allianz in Germany, Axa in France, ING in the Netherlands or AIG in the US, the British companies, comparatively weak, look ripe for consolidation. Expect action here, with the more aggressive players, Sun Alliance and Commercial Union, likely to lead the way.

Opinions are divided within the industry about the economies to be gained from merger. There is also the problem, as with the building societies, of management egos. Nobody seems prepared, yet, to give way to their rival. But that could all change if one of the big foreign companies enters the fray, a move that is long overdue.

When a US default becomes thinkable

So far, the battle over the US budget has tended to prove the theory that if you are going to owe money, it is better to owe a lot than a little. In most cases, the threat of default, even as in this case when made for political purposes, would have lenders running for the receivers. In the case of the US, the world's largest borrower, it has to date provoked only nervous laughter. In part, that is because financial markets haven't taken the threat seriously, unable to think the unthinkable.

Until yesterday that is; few are yet prepared to believe it will actually happen, but the perceived risk certainly seems to be rising. President Clinton has said he will veto the increase in the debt ceiling passed by Congress because of the unacceptable spending cuts that Congressmen have linked to it. The Treasury will be able to dip into other government funds, but the timetable for an agreement before it is forced to default is horrifyingly tight.

Budget impasses are nothing new to Washington. Since 1982 there have been 25 increases in the debt ceiling, and several temporary closures of government. However, there is an important political difference this time. Previously it was a Republican President clashing with a Democrat- dominated Congress. As Democrats, they were always philosophically sympathetic to voting through increases in the size of government. The Republican Congress confronting President Clinton wants to roll back government.

Even so, there is some justification for the markets' remarkably sanguine view. The benefits of cutting the budget deficit - for US bonds and the economy - might outweigh the costs of a temporary debt default. Markets have also focused more on the content of the administration and congressional budgets, which are quite close, and less on the political posturing that is steadily driving a wedge between the two sides.

Nonetheless, this is no reason for the politicians to believe they might actually get away with using the nuclear option - default. The markets are ultimately more powerful than the policy-makers and the coming week on Wall Street could be every bit as turbulent as events on Capitol Hill. Markets need to deliver a short and sharp message to Mr Clinton, on the one hand, and Messrs Dole and Gingrich on the other - that a default in the world's biggest bond market really is unthinkable - and their mood is to do just that.

Steel fist may call for a velvet glove

It is hard to believe, but a small steel company employing 300 people on an island in Cork Harbour is causing as big a state aid row in Brussels as the massive and controversial subsidies for Iberia, the Spanish airline. British Steel, the Department of Trade and Industry, the Irish government and Karel van Mierts, the European competition commissioner, have been wrangling over it all year.

This week the Luxembourg government helped Tim Eggar, the industry minister, block approval from the council of ministers of a pounds 27m aid package for the plant. The aid is for knocking the operation into shape ahead of its takeover by Ispat, the Indian steel company. The Indian intervention has been the Irish government's main hope of persuading Brussels to approve what prima facie was illegal state aid to keep the plant open. Normally, a takeover counts as good evidence that a plant has a future and that subsidies are more than unemployment pay by another name.

No such luck. With British Steel weighing in with threats to close a plant at Shelton in Staffordshire, apparently hit hard by competition from Irish Steel, the British government's resolve has been stiffened. Irish Steel may be a tiny plant making basic products, but it takes only a small amount of extra production in a glutted market to tip prices downward. It hardly needs saying that the Irish want to raise output.

British Steel clearly has right on its side; it is an unsubsidised commercial company. The rest of Europe is gradually being weaned away from government subsidy, too. Sadly, the political reality is that Ireland has only one steel plant and an unemployment problem. High politics are also involved, with the issue in danger of becoming muddled with sensitivities over the Northern Ireland peace negotiations. Mr Eggar cannot afford to be seen as the man who closed the plant. Compromise is not what this little saga calls for, but it may be what Mr Eggar has to accept.

News
people

Actress sees off speculation about her appearance in an amazing way

Arts and Entertainment
Serge Pizzorno of Kasabian and Noel Fielding backstage at the Teenage Cancer Trust concerts
musicKasabian and Noel Fielding attack 'boring' musicians
News
peopleLynda Bellingham's tragic final Loose Women appearance moves audience to tears
Arts and Entertainment
The last great picture - Winner 'Black and White' and overall 'Wildlife Photographer of the Year'
art
PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
'Right Here' singer Jess Glynne is nominated for Best Newcomer at the MOBO Awards 2014
musicExclusive: Jess Glynne hits out at 'ridiculous' criticism of white artists nominated for Mobo Awards
Voices
'Irritatingly Disneyfied': fashion vlogger Zoella
voices

Arts and Entertainment
Enid Blyton's Magic Faraway Tree is to be made into a series of films
film

Enid Blyton’s Magic Faraway Tree really is being made into a film

Arts and Entertainment
Separated at birth? Frank Sivero (left) claims The Simpsons based Mafia character Louie on his Goodfellas character
arts + entsFrank Sivero sues Simpsons studio over allegedly basing mobster character on Frank Carbone
News
Carl Bernstein (left) and Bob Woodward (right) with former 'Washington Post' executive editor Ben Bradlee
people

The Washington Post editor helped Bob Woodward and Carl Bernstein bring down President Nixon

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: The SThree group is a world le...

Trainee Recruitment Consultant Birmingham

£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

Trainee Recruitment Consultants

£20000 - £25000 per annum + OTE £Competitive: SThree: SThree Group and have be...

Helpdesk Analyst

£23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...

Day In a Page

Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

Wildlife Photographer of the Year

Intimate image of resting lions claims top prize
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
Ed Sheeran hits back after being labelled too boring to headline festivals

'You need me, I don’t need you'

Ed Sheeran hits back after being labelled too boring to headline festivals
How to Get Away with Murder: Shonda Rhimes reinvents the legal drama

How to Get Away with Murder

Shonda Rhimes reinvents the legal drama
A cup of tea is every worker's right

Hard to swallow

Three hospitals in Leicester have banned their staff from drinking tea and coffee in public areas. Christopher Hirst explains why he thinks that a cuppa is every worker's right
Which animals are nearly extinct?

Which animals are nearly extinct?

Conservationists in Kenya are in mourning after the death of a white northern rhino, which has left the species with a single male. These are the other species on the brink
12 best children's shoes

Perfect for leaf-kicking: 12 best children's shoes

Find footwear perfect to keep kids' feet protected this autumn
Anderlecht vs Arsenal: Gunners' ray of light Aaron Ramsey shines again

Arsenal’s ray of light ready to shine again

Aaron Ramsey’s injury record has prompted a club investigation. For now, the midfielder is just happy to be fit to face Anderlecht in the Champions League
Comment: David Moyes' show of sensitivity thrown back in his face by former Manchester United manager Sir Alex Ferguson

Moyes’ show of sensitivity thrown back in his face... by Ferguson

Manchester United legend tramples on successor who resisted criticising his inheritance
Two super-sized ships have cruised into British waters, but how big can these behemoths get?

Super-sized ships: How big can they get?

Two of the largest vessels in the world cruised into UK waters last week
British doctors on brink of 'cure' for paralysis with spinal cord treatment

British doctors on brink of cure for paralysis

Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
Ranked seventh in world’s best tourist cities - not London, or Edinburgh, but Salisbury

Lonely Planet’s Best in Travel 2015

UK city beats Vienna, Paris and New York to be ranked seventh in world’s best tourist destinations - but it's not London