To say that the U.S. economy is caught between a rock and a hard place would be putting it mildly, meaning commercial insurers will have to fight for every premium dollar while battling to keep their loss ratios under control.
Consider the challenges facing insurers:
o Unemployment is rampant, far above the official rate of 9.5 percent, undermining workers' comp growth.
o Our overinflated housing market has imploded, with no sign of a robust recovery. Commercial construction is down as well.
o Our financial system was done in by its own greed, a lack of transparency and poor oversight.
o The federal government is buried in debt, with red ink still rising by the trillions.
Meanwhile, the odds of a healthy rebound any time soon are slim, given the following hurdles.
o State and local governments are slashing budgets and civil servants.
o Banks remain tight with credit, having to boost capital to satisfy regulators, and fearful of lending to even the best risks in such perilous times.
o Our understandably skittish private sector is sitting on a mountain of cash reserves, afraid to hire new people or build inventory prematurely.
o Consumers are likewise reluctant to start spending again, with those lucky enough to still be working fearful of losing their jobs.
Perhaps the biggest hurdle is the political paralysis gripping Washington. With interest rates at historic lows, the Federal Reserve is nearly out of options on stimulating growth, and with budget deficits out of control, the same goes for Congress and the White House.
It will only get worse after November's midterm elections, with the Democrats doomed to see their majorities narrowed in Congress and perhaps lose control of the House, the Senate or both. The partisan gridlock will become even more pronounced, making me wonder whether Washington will be able to accomplish anything substantial over the next two years.
We have no one to blame but ourselves for this sad state of affairs. We complain that politicians do not work together for our common good and that our leaders are either unable or unwilling to make the hard decisions necessary to get us back on track.
But the fact is we get the government we deserve. Any time a politician says or (heaven forbid) tries to actually do something unpopular, they are most often voted out of office. And in this toxic environment, any politician who dares to cooperate with a member of the opposing party is virtually tarred and feathered and driven from the tribe.
What will be the impact of all this on the insurance industry?
o Expect commercial markets to remain soft for the foreseeable future, as exposure growth continues to lag.
o Expect a fight for market share–but not to the death. Underwriters cannot afford to give away the store in such a poor investment climate. Yes, folks, carriers are in the business of writing insurance for a living again!
o Risk management will be on the rise, as insurance buyers look to keep losses under control and shrunken staffs on the job.
o Expense control will be critical, particularly in fighting fraudulent claims and managing health care costs.
o Service will be supreme, as carriers and their producers focus on retaining their best accounts.
This isn't a pretty picture, but it could be worse. At least insurance markets are well capitalized. The worst is behind us. Let the painful rebuilding process begin!
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.