1997 was an exceptional year with the privatisation of many mutual building societies injecting billions of pounds into the economy. Whilst that will not be repeated on the same scale during 1998, businesses remain fairly confident. Consumers though remain cautious with many of them still wary of possible redundancies whether caused through a continuing rationalisation in many industries, a plain turn-down in the economy, the stock market bubble suddenly bursting, or Government measures to reduce demand to avoid the economy over-heating.
The performance of the Financial Services industry closely correlates to house buying and other major purchases by consumer (e.g. cars, new kitchens). As indicated in the Social and Cultural trends, house purchases will remain strong due to changing demographics, though probably not suffering excesses due to trading up simply to increase equity. Purchase of consumer goods will continue to benefit through the strong pound and an increasing need to replace goods that have come to the end of the natural life (rather than simply buying the latest fashion).
With a polarisation of society those households with multiple working
professionals will have spare financial assets to invest and to spend on
leisure activities. Even those whose incomes are more erratic will, when
times are good, afford themselves some leisure as a respite as well
as saving to top-up liquid assets.
In July 1994 the European Community issued the 3rd Life Directive which removed national restrictions on selling and buying life insurance within the community. The UK is unique in that Life companies are taxed on any investment income but the proceeds to the life policy holders are tax free. Elsewhere in Europe it is the reverse; the premiums can be 25% less and tax is deferred and in many cases saved.
On a world wide basis, there was the recent World Trade Organisation (WTO) agreement to liberalise financial service markets, though in reality barriers remain in many countries. These changes are at first more likely to impact investment banking and commercial insurance rather than retail. On a retail front, major insurers are likely to step-up their investments abroad, usually through acquisition so that they can capitalise on the acquired brand.
Whilst in theory EMU will make costs and charges more transparent, but cultural
and language barriers, as well as caution, are likely to inhibit most consumers
buying internationally. After all, insurance is about reducing risk.
Nether-the-less, some US insurance for instance is substantially lower than
the UK (see box below).
|UK Companies||US Companies|
|Allied Dunbar||76||Instant Term Life Quotes (insurer unnamed)||42|
|Equitable Life||67||Quick Quotes (5 companies)||37 to 44|
|Scottish Provident||80||America Quote (all top insurers)||41 to 46|
|Standard Life||84||e.g. First Colony (rated A++)||42|
The predicted growth within the financial services sector is attracting new players. Besides the foreign players highlighted above, many well established UK brand leaders are entering the market. They include high street retailers such as Virgin Direct, Marks and Spencer, Sainsburys, Tesco, and Safeway. Many have used telephone banking as their business delivery model supplemented with financial services desks in their supermarkets.
Likewise, established financial services players have broaden their offerings
to consumers: Halifax (an ex building
society (thrift) into banking, Standard Life (a mutual insurer) also into
banking, and of course all the established High Street banks and building
societies offer a range of insurance products, usually as tied agents.
Competition, new delivery methods, legislative requirements, and more demanding consumers, are some factors that are fueling the demand for high trained staff with the appropriate personal qualities (e.g. telephone rapport). A general UK reluctance to train workers has attracted companies to particular geographic areas (e.g. Leeds for telesales) but this has now resulted in skills shortages in those areas. At the managerial and professional levels, many such senior staff were made redundant in the recession. This is now impacting companies as they seek to grow new services and delivery channels.
Much expansion relies on information technology, but the year 2000 problem
and the impending EMU has soaked up many technical staff.
The post war period was a time of economic growth when customers would clamour
for whatever goods were available and whatever the quality. To-day, mass
production has in many cases produced an over supply of very similar goods
and, in particular, services. And whilst product quality has in many instances
become more consistent, products are in many cases built to a price. Moreover,
in a global information based society, ideas can easily be replicated by
competitors and assimilated by consumers. Consumers have become remarkably
streetwise, especially with consumer goods. In many cases they have been
backed-up by consumer legislation.
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