Can brokers cope when the cash crisis bites?
INSURANCE TIMES - 13TH DECEMBER 2007
The US sub-prime crisis is starting to have an impact in the UK, so how will this affect brokers?
The credit crunch has started to bite: two months after the crisis hit the UK sub-prime market, analysts are warning that hundreds of broker jobs in the UK insurance market are under threat.
Add to that the new difficulties of obtaining credit, which are particularly tough for a market going through an M&A craze, and a heighted scrutiny on brokers’ books coming from insurers, and a very big problem emerges.
Recently, mortgage broker APS went into administration. Managing director Peter Guntrip said: “Trading profitability has been difficult for our sector for some years but, lending restrictions following the credit crunch proved the last straw.”
Although the credit crunch has its roots in US dodgy lending practices, its repercussions are going to be wider than the mortgage markets.
The availability of funds, borrowing and defaults all impact on a broker’s business – and this crisis is far from over. Some believe worse is yet to come.
So, should brokers be expecting minor ripples or a tsunami? And, for those thinking of selling up their businesses, have they missed the boat or can they still expect a good price?
Simon Burgess, managing director of payment protection insurance British Insurance says:
For his sector of the market, the credit crunch could have some benefits. “From our perspective, we think more payment protection insurance will be sold because of the economic uncertainty,” he says.
He adds that if it is tougher to obtain funding or agencies and some brokers struggle to get by, then he has limited sympathy.
“Money will be available to those that have expertise. I don’t see Towergate struggling to obtain funds as its recent purchase of Open GI shows.”
He argues, controversially, that tougher conditions will sort the wheat from the chaff. “Despite regulation, there are still a lot of brokers out there who are sitting on their hands. They’re not adding value and their days are numbers. They should give up broking and becomes estate agents.”
