Many of us are far more adroit at managing our personal finances and outgoings than ever before. As our earnings have had to stretch further,   so we have educated ourselves to make discerning, cost saving choices, to plan ahead to take advantage of better deals and offers.  The carefree pre-financial crisis good old days are long behind us and we have had little choice but to adapt our life styles to run in parallel with the fortunes of the economy – now in a wearisome period of slow and fragile economic recovery.

In similar fashion, the UK insurance sector is also facing tough operating conditions.  The slow to emerge economic recovery is depressing consumer demand for discretionary insurance products and thereby affecting insurers’ ability to grow revenue.  There is also a high level of competition in the market, with competitors chasing relatively small amounts of business.

Added to the squeeze on margins are huge potential costs to be faced from implementing a raft of legislation – in particular the controversial Solvency II. In the long term of course, this legislation could bring greater resilience to the sector, enhancing the attractiveness of London market security.  But in the short term it could involve substantial costs in terms of increases in capital holdings and the infrastructure and personnel for risk management.

So what will this mean for corporate real estate needs in the insurance sector?

In the short to medium term we are likely to see a continued focus on a leaner cost structure, with an emphasis on:

• Efficient use of floor-space
• Lease re-gearing
• Consolidation / rationalisation
• A need for increased agility and flexibility of the real estate portfolio in terms of shorter lease renewals and flexible floor-space

Although I have highlighted challenges facing the sector I would like to add it is not all doom and gloom.  There are some counter balancing forces at work such as rises in premium rates -particularly in the motor business, stable earnings, conservative capital management etc  and these have led to an improved prognosis for the sector, which,  according to Moody’s has recently changed from negative to stable.

Watch out for our forthcoming insurance sector digest – due out shortly.  This will be available, along with our other sector digests.