While the insurance industry has its own distinct business cycle, that cycle is itself malleable to forces from outside the industry.
A panel discussion held at the
Darrel Grimes of
“The big worry is how is the Fed going to exit [low interest rates] without putting us back into recession,” Grimes said. “It’s going to be very tough to orchestrate.”
Two other concerns, he added, are the reliance on consumer spending to fuel the recovery, and the spike in foreclosures and construction loan delinquencies. Nonetheless, Grimes said there are still some bright signs on the economic horizon, such as rising business investment and higher worker productivity.
Yet, even rising productivity is not an unalloyed positive, noted Kirk Goeldner, SVP and managing director at the
The soft economy also is helping the soft market persist, Goeldner noted. With premium dollars shrinking, any market gain is made at someone else’s expense. “We’re just taking business from each other,” he said, adding that while the oil spill in the Gulf of Mexico may harden certain rates, it is insufficient to reverse the larger trend. “The oil spill won’t harden the market because it affects too few people.”
Much as the economy can buffet the insurance market, so too does regulation. Although the attention has centered on federal efforts, Grimes said tort reform at the state level has greatly altered the medical malpractice market. As the number of lawsuits filed continues to fall, so will rates. “We expect two more years of soft market,” Grimes said.
While the impacts of tort reform were easily predictable, the fallout from health care reform will be tougher to assess. Yet, Goeldner said there are already a few signposts. “We do have a crystal ball for health care reform—it’s Massachusetts.”
Grimes added that insurers must account for the vagaries of health care reform in their planning. “The landscape can change in ways we can’t predict, so you have to be flexible.”