How the 2020 Recession is Different From 2008 for Insurance

Frank Pennachio has more than 30 years of experience in the insurance industry as an agency owner and producer. In 2009, he sold his agency and co-founded Oceanus Partners, a ReSource Pro company. He is now a full-time trainer and consultant to insurance organizations.

Top 4 Questions Insurance Professionals Are Asking About the Economy

We’ve been diving into all the different ways the 2020 recession will continue to impact the insurance industry, including earlier posts about three myths, five emerging risks, and three ways brokers can help clients at this time. In this piece, we’ll discuss key differences between the current recession and that of 2008 for insurance professionals.

1. How will the recession affect premiums?

According to Swiss Re, global life and non-life premiums are expected to contract about 6% and 0.1%, respectively, a similar decline to that seen in 2008. Unlike the previous recession, however, this blow has been somewhat cushioned by a hard insurance market, which we can expect to persist despite the current economic situation. Leaders at Munich Re are currently anticipating the hard market to last until 2022.

2. Which lines in insurance will bounce back sooner?

As the nation begins to reopen, workers’ compensation and small commercial will likely be the first to bounce back as employment and, consequently, claims rise. Personal auto in particular has enjoyed a period of low claims activity, though Fitch warns this is “unsustainable” as the nation returns to the road, even if post-pandemic rates increase.

Meanwhile, sectors such as hospitality and aviation could face a much slower recovery due to lingering fears over travel. In the case of the latter, a protracted recovery could be particularly challenging for insurers due to lower premiums and the possibility of one-off loss events.

3. How will the recession affect employment in insurance?

Between 2007 and 2008, hire rates in finance and insurance dropped 17%, according to the U.S. Bureau of Labor Statistics. A similar trend this year could mean bad news, especially given the ever-present talent crisis in the insurance industry, with experienced professionals retiring faster than young professionals are joining.

So far, however, a majority of insurance organizations plan to maintain or increase their hiring in the face of the pandemic, according to an August report by Aon. At least 48% of companies surveyed said they will hire more employees over the next 12 months, with many citing understaffing and increased business volume as the primary reasons for doing so.

4. How long will the recession last?

While it’s difficult to determine an exact timeline, we do have some idea of how long the recession will last. The good news is that most projections see this period of decline as relatively short compared to 2008. A May report by Fitch Ratings suggests most insurers will return to profitability by 2H 2021. The previously mentioned report by Swiss Re also supports this, estimating that premium growth will return to normal by the end of next year, with recovery accelerated by the hard market.

The bad news is that most of these projections hinge on uncertain factors such as the availability of a vaccine. According to data gathered by McKinsey, the earliest we can expect to see one is sometime between Q4 2020 and Q1 2021, but it could still face manufacturing and distribution challenges. Until then, reopening efforts will likely be slow and businesses will continue to contract.


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