Business volumes in the UK life insurance sector dropped unexpectedly in the three months to March while profitability remained flat, according to a quarterly poll.
31 MARCH 2014 | BY JUDITH UGWUMADU
The latest CBI and PricewaterhouseCoopers Financial survey, which was conducted before this year's Budget announcement,revealed that the entire financial service sector saw business volumes grow for a second consecutive quarter, except for life insurance.
PwC's insurance leader Jonathan Howe said the survey showed that life insurers had concerns over business constraints in the year ahead. He added that they were right to be concerned given the unexpected annuity announcements made in the chancellor's Budget on March 19.
'However, with some focus on business strategy and product innovation, many life insurers can grasp this as an opportunity, and although we are likely to see a drop in optimism in the next quarter, we believe this will recover over the next 12 months,' he said.
Howe noted that life insurers continued to invest in IT. 'It's good to see that investment in technology is high on the agenda, as much of the long-term growth opportunity will be with those with a digital lifestyle,' he said.
General insurance also saw a fall in profitability for the first time this year, the poll found. This was driven by strong competition caused by income from fees, commission and premiums to decline, compounding the longstanding problem of plummeting investment income.
Adverse weather over the winter months took a toll on the sector, with a steep decline in the value of insurance claims in the last three quarters. The poll warned that profits would fall further.
Howe continued: 'General insurers remain optimistic about the future though; to deliver to this optimism will be a tough ask for many given the market constraints they have identified.'
Insurance brokers saw business volumes slow down due to a sharp fall in business with industrial and commercial companies. Similar growth rates are expected next quarter, according to the poll.
However, profitability rose strongly, following a fall in the previous quarter and is expected to grow similarly over to next quarter.