UK insurer sentiment slips Q4; hiring and IT-spending drives wither

UK insurers lost in Q4 a further dose of the optimism that had carried them through 2022 as economic conditions hamper volume growth and generate new cost pressures, a quarterly financial services sentiment survey from  PwC has indicated.

The drop-off in optimism for insurers stands in contrast to sentiment gains for bankers and stable overall sentiment readings for investment management firms.

While a net 90% of insurance-sector respondents claim to have enjoyed volume gains over the past three months, the panel now "expects business volumes to fall in the coming three months, but [for] returns to sustain their gradual rise," authors wrote of survey results.

With the decline in volume outlook, the net sentiment & optimism measure tipped to a 73% net negative reading, well down on the prior quarter survey.

Volume and margin concerns are likely traceable to "continued pressure on consumer spending" on the revenue side, cost pressures on the business side.

"Insurers are also facing significant rises in salary costs, but may find these difficult to pass on to customers," authors noted. Some 70% of the insurers on the panel suffer from skills shortages, more than other financial service sectors. "These pressures are likely to drive further pay increases."

Regulatory hurdles remain a heavy burden on industry sentiment. The pending new insurance contract standard, IFRS 17 and the Consumer Duty are high on the worry list.

Capital expenditure on IT may increase over the coming 12 months, a net 49% of the panel says, up from the prior reading. Rising IT Capex had been the expectation for nearly the entire panel as recently as Q1 2022.

A net 23% of the panel expect to increase employment, down from 31% in the prior quarter survey.

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