How does the state of the economy affect the commercial insurance sector?

Reading the Wall Street Journal this morning, one of the main headlines referred to the rate cut announced by the Federal Reserve yesterday, one of the sharpest decreases in over 20 years. Reading this lead me to think that many small business owners might be unaware of how the economy as a whole, and specifically the stock market, affected how the insurance industry operated. While there are many factors that contribute to the health of the industry, such as busy hurricane seasons and the subsequent losses paid from those events, the one area of that you might not be aware of that is a major contributor to insurance companies financial success, or lack thereof, is the stock market. For some time, insurance companies have reaped a major source of their income by investing in the stock market. As a result of the strong performance of the market the past few years, insurance companies income has been strong. Due to the income derived from this performance, along with the lack of any major catastrophic payouts, the insurance market has been in a "soft" market cycle. The term "soft" market is used in the industry to describe the decrease in premiums overall due to factors such as the one the recently strong stock market has played in increasing the insurance company ledgers. While there are many other areas that contribute to the insurance industries overall success, this is an example of one that is pertinent in the wake of the current state of the economy as a whole and the stock market specifically.

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