How does a recession effect the insurance industry?
Specifically Commercial Property and Casualty- General Liability, Workers' Comp, D&O/E&O. Will business be forced to cut back or eliminate coverage all together?
Probably will not impact the P&C business much. The business cycle typically has very little correlation to the insurance cycle. The fortunes of insurance companies tend to be influenced by how much capacity (capital) is in the insurance business. When there's too much (like right now) competition gets intense, prices get driven down and results begin to falter. When enough insurance compamies get in enough trouble, some cut back, some go out of business and the insurance climate (at least from the insurance company point of view) improves. That happened on the property side in 2006. The year after all the 2005 hurricanes which cost the industry billions. 2006 was a great year as prices increased significanty but there were no big hurricanes. It was so good prices came down in 2007 and again no big hurricanes. If there are no big hurricanes in 2008, expect the industry to get real competitive.
If a business can't afford insurance then it is not viable enough to stay in business. The worst way insurance companies get messed up in recession is that they don't just collect money and pay out claims; they invest their money. Stock market goes down will usually have a negative effect on the companies assets- that is unless they are short, but then an upturn will kill them.
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Many of those coverages are legally mandated and not within an employer's authority to eliminate them. Any time there is a contraction of our economy, business health and jobs suffer. P&C insurers premium income drops right along with other insurance types and other businesses. Business survives and thrives based on earnings and profits. When recession hits, virtually all businesses suffer earnings hits and force belt-tightening.
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40 years life insurance experience as Vice President and Chief Underwriting Officer
Probably will not impact the P&C business much. The business cycle typically has very little correlation to the insurance cycle. The fortunes of insurance companies tend to be influenced by how much capacity (capital) is in the insurance business. When there's too much (like right now) competition gets intense, prices get driven down and results begin to falter. When enough insurance compamies get in enough trouble, some cut back, some go out of business and the insurance climate (at least from the insurance company point of view) improves. That happened on the property side in 2006. The year after all the 2005 hurricanes which cost the industry billions. 2006 was a great year as prices increased significanty but there were no big hurricanes. It was so good prices came down in 2007 and again no big hurricanes. If there are no big hurricanes in 2008, expect the industry to get real competitive.
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In the business since 1977.
For small businesses and financially unstable ones, particularly contractors, yes, they won't pay the insurance bills.
But the larger guys will – they NEED that insurance to meet contract requirements.
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agent, 21+ years