The shock reverberating throughout the UK financial services sector from the success of the ‘Leave’ vote is palpable. The plunging pound and falling stock markets have contributed to an air of panic throughout the business world. And yet in many ways, the effect on businesses will be far less dramatic than the over-excited media would have you believe.
It is important at tense times like these to remember previous shocks to the financial system, such as the dot-com bubble or the global financial crisis. Ultimately, the markets stabilised fairly quickly and recovered to higher levels than they were at before. Therefore, any attempt to adjust to it was wasted effort. Overall, given the time frame involved in Brexit and the fact that there will be no immediate change in direction for Britain’s trade policy, there is time for calm reflection about its effects.
For the majority of companies in the UK, which don’t trade externally, Brexit will have far less effect than most people initially imagine. In terms of operations, there is nothing in Brexit that should require immediate changes to existing plans. Even for the 6% of firms in the UK that actually trade abroad, their markets will not change for around two years, and for the 94% whose trade is completely based in the UK, there will be little if any noticeable change. Even the few life and pension companies with major overseas strategies, such as Prudential and Aviva, have their overseas operations mainly focused on the far east, which will be unaffected by Brexit.
This is even more the case for the retail life and pensions market in the UK. It has always been ahead of the European markets, and therefore, never really driven by it. Even if the ‘Remain’ vote had won, the life and pension sector was likely to forge ahead based on the dynamism within the UK market for life and pension products rather than be driven by events happening within the EU.
In fact, in terms of product range and market-demand, it is hard to see what major changes are likely to occur that can be attributed to Brexit. The threats to life and pension providers within the market remain the same today as they were twelve-months ago;
- an increasingly techno-savvy customer base demanding real-time sales and service
- customer demand for more flexible products to allow them to maximise their financial security
- danger of new entrants with large internet-based subscriber lists
The best response to these pressures is to invest to provide the multi-platform services customers need, and to produce flexible products that fulfil the financial needs of the customer, thereby positioning the company better to fend off new entrants and to increase market share. This is what has been on the strategic plan for the majority of life and pension companies for the last few years and leaving the European Union has no effect on it at all.
The 24-hour news cycle thrives on drama. Whilst they announce ‘breaking news’ about stock-market falls or comments from global investment banks in hushed excited tones, they don’t bother mentioning that the day-to-day purchasing of pensions, investment and protection goes on unabated by a British population, whose needs have been changed not one whit by Brexit. The demand for retail investment and protection products remain the same as before, and therefore, strategies for companies operating in the market remain as valid as ever.
If life and pension companies were confident that their strategies were correct for the market one month ago, then they should ignore the febrile chattering within the media and follow the maxim that was so vital for success the last time the UK was cut off from Europe – Keep Calm and Carry On.