The coronavirus pandemic, a Financial Conduct Authority (FCA) poll found, has pushed thousands of financial services firms to the brink of failure. For the Chartered Insurance Institute (CII), this sets off alarm bells.
“It is concerning that the FCA has determined 4,000 firms across three key areas are deemed at risk,” stated CII chief membership officer Keith Richards in response to the data. “Also, I am surprised that there is no indication of a proactive plan to help mitigate possible failures during these unprecedented times.
“It is important to protect the interests of the consumers who may also be impacted as well as avoid further financial pressure being placed on the rest of the sector.”
As previously reported by Insurance Business, the FCA surveyed the firms it prudentially regulates in the world of investment management, payments and e-money, retail investments, retail lending, wholesale financial markets, and insurance intermediaries and brokers.
Based on the responses – which delved into areas such as liquidity resources, net income expectations, and staff furloughs – it emerged that there are companies, most of which are small- and medium-sized enterprises, that are at heightened risk of failure due to low financial resilience as a result of COVID-19.
Richards, meanwhile, also took the opportunity to acknowledge the efforts of CII members.
“We must appreciate how well firms have done to weather successive storms of lockdowns, health and economic impacts, and obviously the additional effect of people’s personal lives as well,” he asserted. “The work our members have done in this period to maintain and even go beyond what they normally offer customers, should be commended.
“This survey was done before furlough was extended, which now gives employers financial support until the end of April and this time it can be taken flexibly. Firms can now furlough for as little as one day a week, for example, and this flexibility and guaranteed support could help firms bounce back better in coming weeks.”
According to the poll, 44% of insurance intermediaries and brokers had furloughed employees – leaving the sector in the number two spot, as retail lending firms landed at the top with 49% of them saying they had furloughed staff. At the bottom were investment management companies, 8% of which participated in the furlough scheme.
The CII executive added: “At the time this survey was undertaken there were no vaccines in sight. The announcement of new vaccines has seen markets injected with a little optimism. The flip side to that, however, is that it also took place before lockdown three, which could cause greater damage, despite us feeling so close to an exit from measures to slow the spread of coronavirus.”
The British Insurance Brokers’ Association (BIBA), meanwhile, said the survey results “make for interesting reading”. In a response to a request for further comment from Insurance Business, BIBA compliance & training head David Sparkes stated that the findings confirmed what we all knew – that no sector has been unaffected by COVID-19’s consequences.
“BIBA will be continuing to engage on issues arising from the pandemic for our members and their customers,” declared Sparkes. “That said, the survey also shows that the insurance broking sector is a resourceful and resilient one and can adapt quickly, as illustrated by the move to homeworking for many.”
Additionally, the compliance & training head highlighted the fact that the coronavirus business loans had a lower interest rate compared to normal bank loans and “may have provided an attractive vehicle for a few finance-savvy brokers” to inject their businesses with a source working capital.
“The vaccines bring real hope that the end is in sight and we can expect the wider economy to pick up relatively quickly,” Sparkes went on to say.
