Tag Archives: economics

Insurers and the Economy

Taking Care with Economic Headlines

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By Dr. Steven Weisbart, Chief Economist, Insurance Information Institute

Dr. Steven Weisbart

In normal times, economic news isn’t something many people pay attention to, other than—possibly—at the headline level. And the headlines generally sufficiently convey what’s happening with the economy. But we’re entering a period in which the usual measurements of economic activity might be grossly misleading.

Take real GDP, for example. This is the inflation-adjusted measure of the total output of goods and services for the economy. When real GDP is growing from one calendar quarter to the next, that’s a good sign. The growth is often pretty small, percentagewise, and so it is typically expressed as a SAAR (seasonally-adjusted annual rate). This means that the rate for a quarter is treated as if it would continue at the same rate for the next three quarters. This virtually never happens, but it has become the conventional way to express GDP changes, nevertheless.

To illustrate the effect of expressing real GDP changes as SAAR, look at Figure 1.

Figure 1

This chart uses data provided by Blue Chip Economic Indicators, a publisher of a monthly survey of 53 econometric forecasts. Blue Chip averages the 10 highest, the 10 lowest, as well as the median forecasts, and we’ve graphed them in Figure 1. Note that the median of the forecasts in 2020:Q2 is -35.7 percent. This is a staggering dropoff in the economy, but of course no one is actually predicting that the economy would sink by 8.9 percent per quarter each quarter through 2021:Q1 (which is what results from the SAAR adjustment).

So be prepared for gloom-and-doom headlines in the fall when the Bureau of Economic Analysis publishes its measure of the real growth (or shrinkage) of the U.S. economy in the second calendar quarter.

On the other hand, note from Figure 1 that the GDP growth rates for 2020:Q3 and onward are all positive numbers. This is a picture of an economy that is shrinking for only one quarter—the V-shaped recovery that some economists (not us at the Triple-I) have forecast. This too is a distorted impression. To see why, look at Figure 2.

Figure 2

In Figure 2 you see a small dropoff from 2019:Q4 to 2020:Q1 and the big dropoff from 2020:Q1 to 2020:Q2. You also see growth each quarter from 2020:Q3 onward through the end of 2021. However, despite this growth the economy doesn’t even reach the level of output in 2020:Q1—which includes the first month of the recession—at the end of the 2021 calendar year. On New Year’s Day 2022 we will perhaps be celebrating six consecutive calendar quarters of economic growth, but in relation to the prior non-recession years we will still be lacking (assuming that the Blue Chip median forecast is correct).

If you were to match the pattern of recovery to an alphabet letter, you wouldn’t call it a V; there really isn’t a direct correlate to the slow but steady return to the pre-recession level, but a U might suggest that the economy is taking a while to recover fully.

Business Risk, Emerging Risks, Insurance Industry

World’s Insurance Markets Hit Hard by COVID-19: Triple-I

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The world’s 10 largest insurance markets are cumulatively expected to see gross domestic product (GDP) decrease by 4.9 percent in 2020 compared to 2019 because of COVID-19, according to a new Insurance Information Institute (Triple-I) report.

“Given the scope of the downturn so far in China, North America, and Western Europe, the virus’s continuing expansion in the Southern Hemisphere, and the possibility of further rebounds in the former this fall and winter, the likelihood of a V-Shaped recovery is extremely low,” writes Dr. Michel Léonard, Vice President & Senior Economist, Triple-I, in the Global Macro and Insurance Outlook: Q2 2020. “The most likely outcome for the rest of 2020 is a slow recovery, with multiple false starts and step backs, that does not stabilize until well into 2021.”

Insurers and the Economy

Employment Trends in the Insurance Industry

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Dr. Steven Weisbart

By Dr. Steven Weisbart, Chief Economist, Insurance Information Institute

On September 6, 2019, the U.S. Bureau of Labor Statistics announced that the U.S. economy had added 130,000 jobs (seasonally-adjusted) in August; and more than one-and-a-quarter million nonfarm jobs (actually 1,266,000) through the first eight months of 2019.[1]

Nonfarm employment has risen every month since October 2010—107 consecutive months and counting. Not every sector or industry has consistently added jobs in that span. Indeed, the diversity of the economy has seen robust job growth in some areas that offsets job losses in other areas. Job growth in the immediate wake of the Great Recession was to be expected but the trends in job growth and its persistence in recent years is surprising.

The insurance industry is a case in point. The insurance subindustry with the strongest employment gains in recent years is — not surprisingly—health and medical expense insurers, given the enactment and implementation of the Affordable Care Act. But other insurance subindustries have shown unusual employment trends. For example, as Table 1 shows, both the property/casualty (P/C) and the life/annuity subindustries have generally shed employees.

Source: U.S. Bureau of Labor Statistics

Perhaps the most surprising row in Table 1 is the Agents & Brokers line. Pundits have been predicting for years that the agent/broker distribution channel is about to be replaced by newer methods of distribution. Obviously, that time has not come yet.

As for the P/C and life/annuity carriers, one might assume that the reductions result from automating routine functions, as has been the case in non-insurance industries, such as manufacturing. If this is the explanation, it translates to increased productivity (more work done with fewer employees), which is obviously a good thing.

[1]Two caveats pertain to this number: first, the July and August numbers are preliminary and are likely to be revised—often slightly—up or down, in the coming two months. Second, the overall benchmark revision, to take effect next winter, is likely to trim half a million jobs from the count for 2019, based on data from the Census Bureau. Even with these adjustments, employment kept growing in 2019.