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A packet of biscuits and a pension please Back  
John Cunningham reflects on a year when the financial services industry was caught off guard by new entrants
A year in the life of insurance. It could be said that a topic such as this wouldn't muster too much enthusiasm or energy, and for those outside the industry they could be right. But for those within the industry 1999 was a very interesting year.

On the sales side, the industry wrote £530m last year and it looks like 1999 will come in over £700m. This phenomenal level of growth is more a reflection of the buoyancy in the Irish economy than not of the level of innovation or strategic developments within the industry. But I will come to that later.

We have seen the usual incremental changes to product offerings with no true innovation or creative activity. Without doubt current product developments are both a symptom and cause of the fact that products are still sold and not bought

The Telecom (now Eircom) share activity - in the mid year - was a watershed for the financial services industry. The level of consumer interest generated and the extent to which old paranoia about equity investment were removed, had far reaching implications.

Another important market development was the launch of the new post retirement investment options, ARFs and AMRFs. The developments are one of many steps on the road to pension reform and will allow greater ownership and flexibility of retirement funds for self-employed and 20 per cent directors.

Mergers and acquisitions
Although consolidation in financial services has been a feature of Irish business over the past 10 years, 1999 saw a surge in M & A activity. Irish Life & Permanent, IPT/Mercer/Marsh McLennan, CGU & Hibernian, TSB/ACC, GRE/Royal Liver and not forgetting Ulster Bank! But this is only the start - we still have too many players and too much inefficiency for the status quo to remain.

New entrants
Can I have a packet of biscuits and a pension please? TSB and Superquinn deserve credit for taking the plunge in offering financial services through the Superquinn network. This has worked in the States it has worked in Europe, so why not here? AXA buying PMPA rattled the general market and it looks like AXA are committed to the Irish market. Bank of Scotland rattled everyone. If ever an industry was caught off guard, financial services was!

Consumer trends
Increasing disposable incomes and the growing convenience culture will have significant impact on market success. Distribution and customer affinity are critical to survival in the future. What will the role of the brand be? Are there brands that can sustain the changes in the market structure? One thing for certain is that customer affinity is not a traditional strength in financial services in Ireland. This represents a most significant threat for the future.

Political and regulatory
Growing consumerism has driven a significant growth in consumer protection legislation. This is probably the area where we have seen the most advancement. Disclosure, NPPI and the current discussion about a Super Regulator are all indicative of the growing concern about consumer protection. However, as usual industry has been piecemeal and reactionary. We have failed to see the root cause and respond accordingly. The white paper on health opened the discussion on the role of the VHI.

Fund performance
Ireland, in particular, has been hit with a succession of news reports that has reinforced the poor sentiment towards the fast growing peripheral economies. However, episodes of such poor sentiment prove ephemeral and the temptingly cheap valuation and earnings momentum will ensure that Irish equities will come back into vogue. This I believe will help support the strong growth with the economy and the industry.

What are the challenges for 2000? Over all the industry will have to become less insular and much more forward looking. We need to recognise the risk that exists as a result of our industry's poor reputation. We must understand the changes that are taking place among our customers and think outside the traditional box in developing our solutions.

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