CBI PwC Financial Services Survey

Optimism across financial services has fallen since the last survey, a trend that has seen sentiment deteriorate in eight of the last nine quarters. Taking an industry perspective, optimism appears split, with insurers more upbeat than their banking and investment management colleagues, the latter of whom have reported a decline for the first time in over a year. 

Despite this uncertainty and storm clouds on the horizon, respondents paint a favourable picture of overall business conditions. Profitability, volumes and value of business are expected to continue, especially with private individuals, which has picked up following a 6 month decline. This is reinforced by the strong business results reported by large financial institutions and our recent asset & wealth management report revealing record levels of assets under management (AuM).

In line with our recent CEO survey results, the people agenda comes through particularly strong this quarter, marked by increases in training and overall numbers employed. The UK’s ability to attract and retain top talent, adapt to digital skills and attract more a more diverse workforce are cited by respondents as key to the UK’s position as a leading global financial centre. This focus on talent and people is both interesting and a positive sign to see, especially when we consider the consistent pressure for firms to cut costs, automate processes and put in place plans around their Brexit strategies and a testament to the industry’s resilience when faced with disruption.

Looking at the year ahead, regulation remains a key barrier to growth alongside competition from within the sector. In particular, the threat from new entrants has spiked over the past quarter now at a joint survey record. This was felt most strongly within the banking sector, as new challenger banks begin to impact traditional banks’ books to develop their customer base.

Overall, financial services firms remain cautious. Despite consistently favourable business results helping the short term, respondents look to the future with uncertainty.

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What are we seeing in the market?

Sentiment in insurance has remained flat over the past quarter, driven by volatile trends in business and uncertainty around Brexit and broader economic landscape. Despite this insurers continue to invest in tech and their people to deliver transformation.

Looking at general insurers, competition both domestically and internationally is on the rise, with increasing pressure from other sectors of financial services and new entrants. To stay ahead, general insurers are continuing to invest in IT to provide new services and reach new markets. As a result, general insurers report rising operating costs in part driven by ongoing regulatory changes, but also a marked increase in headcount and training.

Reading across the broker results, business appears muted. Optimism is down, profitability and volumes are up, but firms can see opportunities to grow, in particular through organic growth activities and investment in IT. Under pressure and threatened by growing disintermediation, firms are looking at technology and new talent to help show and add value to their offerings. This drive to invest and evolve their businesses is leading to increasing operating costs, a trend we’ve seen decrease over the past 6 months.

Looking forward

Tech, talent and the skills appear as strong themes this quarter and nicely support the findings of our recent CEO survey. In fact, more insurance CEOs are concerned about the pace of technological change than any of other industry. Therefore it is reassuring to see insurers maintain focus on their people and technology, looking beyond the uncertainty of today to grow their businesses.