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.
Cut through the fiction and learn how to help your business and your clients
According to the National Bureau of Economic Research, the United States officially entered a recession this February, following nearly 11 years of economic expansion. The road ahead will be rocky, but the insurance industry is tenacious during times of economic decline.
As we prepare to face the larger impact of the recession, let’s take a moment to debunk three myths about how economic slowdowns impact insurance.
1. More injuries will be reported at the beginning of the recession
The reasoning behind this belief is that workers who are suffering financially are more inclined to file a claim for something they normally wouldn’t. Research, however, has proven that workers’ comp claims are more likely to drop during a recession. In 2009, the Institute for Work & Health determined that claims frequency is generally influenced by employment. In other words, claims fall because there are less workers, and because inexperienced workers—who are more likely to be injured—are more likely to be let go. Additionally, workers may actually refrain from reporting minor injuries out of fear of losing their jobs.
2. A recession will reverse the effects of a hard market
During a hard market, insurance premiums and demand for policies increase. During a recession, one would think, failing businesses, lower employment numbers, and general financial uncertainty would have the reverse effect.
Not true. A hard market is likely to persist throughout the recession. Drivers of hard markets like natural disasters tend to be unaffected by economic shifts. The recession and the pandemic haven’t stopped the wildfires from raging in California.
3. Insurance organizations can shrink their way out of the crisis
Businesses often attempt to power through recessions by cutting costs left and right. Setting aside the risks involved in doing so—such as losing valuable employees or deferring critical maintenance and repairs which could cause even greater losses.—this sort of approach simply isn’t sustainable in the long-term, even when it’s well calculated.
Business experts often warn: don’t cut your marketing budget, and there’s a good reason why. During a recession, your focus should, arguably more than ever, be on growing your business. Companies which cut costs indiscriminately will find themselves struggling to make do with less throughout the recession, and will ultimately find themselves starved of revenue once the economy begins to recover.
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