We live in the cradle of capitalism. No matter what the Occupy movement may actually want to happen to Wall Street (and that’s by no means clear), the underlying truth is we all depend on the financial system for America’s economy to work. It’s therefore reassuring when we see the latest consumer survey show confidence at the highest level for the year. As a nation, we are starting to buy more goods and services. With increased demand, our industrial and service sectors can slowly return to profit.
As all of us who watch the stock exchanges will know there was a marked drop in values followed by considerable volatility. There’s been slow upward movement and many of the larger corporations have managed to maintain their dividends despite the recession and its aftermath. Taking the general view, this is good for the economy. Taking a more limited view, times have been difficult and this has put a break on the profitability of the service sector including the insurance industry. Insurers cannot continually increase the premium rates to their clients when even a small increase in business overheads may be the difference between survival and bankruptcy.
It’s therefore interesting to see the commercial insurance market now beginning to increase its rates. Not surprisingly, the companies formally announcing this trend have seen their stock prices rise — an increase of revenue triggers greater profits and better dividends. For businesses of all size who must carry insurance, this is bad news. Already under pressure, seeing the premium rates go up by 5% and more is not welcome. Looking across the commercial sector, it’s difficult to get an overview. Neither side of the bargain publicizes the rates paid for each type of policy. Every company wanting cover, regardless of size, negotiates with the insurance industry based on their individual risks. Most of the rates are tailored within bands. Nevertheless, there are more general signs of rising rates. MarketScout, an insurance exchange based in Dallas, showed rates rising by 1% in November.
In a way, we should not begrudge the insurance industry a little latitude. Under normal trading conditions, it invests its premium revenue in stock exchanges and different forms of portfolio. When the recession arrived, investments lost their capital value and underperformed in returns. By coincidence, there have also been a series of bad years for claims with 2101 and, now, 2011 breaking records for catastrophic weather events. It’s ironic to see revenue falling at a time when extraordinary amounts of money have been paid out. The insurers need to start the process of filling their bank accounts and making new investments, hoping to recover their previous strength.
All this means your next round of discussions with your business insurance agents are going to be tougher. Hopefully, you can pass on the increase in your cost overhead to your customers. If their level of business confidence is rising and they are spending rather than paying down their debts, we can all trade our way out of this recession. This still leaves the worry of what may happen to our economy should the Europeans fail to prop up Greece and the Euro fails. There’s a real risk America may be pushed back into recession. Until then, we hope the large and small business insurances rates rise only moderately.