Crunch time for the economy

The economy is going through some difficult times and carnage on Wall Street is already filtering through to the high street. Insolvencies are up 11% in the second quarter of this year and unemployment is rising.

Now is the time to batten down the hatches and keep hold of the clients that you have already. According to the PB Sentiment Survey (pp.41-48), 23% of brokers say that their clients are looking to cut back on their insurance expenditure significantly, with 95% reporting that it is happening to some extent. A storm is brewing and unfortunately it is likely to involve one or two broking casualties.

The economy has overheated and, as George Bush said famously: "Wall Street got drunk." Now we are going to have to grin and bear it. Arson is on the rise, investment returns are falling and there are increasing financial pressures on everybody. Broking is a relationship and people business and, in that respect, there is strength in the industry and it should be in good shape to weather the downturn. However, there has been an enormous amount of goodwill paid for acquisitions over the last few years and it remains to be seen if this will be money well spent as some clients go insolvent and others stop growing.

The downturn in the economy could shake out some of the less prudent consolidators, as there will have been few business plans that have factored in a prolonged downturn in the economy.

Insurers such as Zurich and Norwich Union have already made dramatic job cuts and Allianz is the latest giant to identify the need to cull posts in its retail division. Broker managers will be facing similarly tough and unpopular decisions.

We have had it good for so long: we must remember that business is about the long term and just as bust follows boom, boom will come again - just make sure that you are still in business for when the good times roll.