ABSTRACT
The UK financial services sector has been in a state of flux ever since the so-called ‘Big Bang’: the moment in the 1980s when the financial services markets were liberalised. Traditional segmentation of these markets has been steadily eroded, and many businesses are confronted with new competitors who are not at all like themselves, and who operate within radically different cost structures and follow unexpected or unfamiliar strategies. The markets, and the key players involved, are becoming more global, whilst the assurance industry is concentrating into a smaller set of ‘mega’ companies, each operating in the various major markets. Capacity has become highly mobile and is readily redistributed into markets that offer either high profitability or faster growth, or both. Such changes have caused increasing uncertainty and instability. The life cycles of products, companies and even entire industries are growing shorter. Traditionally profitable products are becoming less so, squeezing the industry’s long-term return on capital and undermining the incentives to devise in-service improvements, new products or lowered business expenses. In pursuit of greater profits, corporations, and effectively their customers, sometimes take unprecedented risks with extremely complex, unproven products (e.g. the so-called ‘derivatives’ that brought down the house of Baring).
