Early on in the recession many economists warned of a very possible "double dip" recession if the moons aligned and the rest of the globe continued to suck in the fumes of our financial flatulence.
The financial news from yesterday and today is not encouraging and though I'm not an economist, just a simple business man in a financial industry that supports a million people in this country, I'd have to say we're in for a very depressing time in the near future.
I'm an optimist who isn't very optimistic.
The US stock market appears to be in virtual free fall, down yesterday alone 3.7%. Last week's yo-yo'ing still had the overall market down for a total to date of 9.5%, just for the month of August.
Consumer prices are increasing and jobless claims are growing, according to reporting in the Wall Street Journal yesterday.
Housing isn't just slumping, it continues its downward spiral with yesterday's National Association of Realtors report showing a 3.5% drop in sales of previously owned homes just from June to July!
According to the Labor Department, average weekly wages are down 1.3% from October.
And foreign economies are just as much in a shambles with the Euro's valuation now in jeopardy, Greece bankrupt, France and Italy dragging the rest of Europe down...
Four dozen economists surveyed by the Wall Street Journal do not agree that we are NOW in another recession, but that's only because of a lack of statistical evidence (which as we know lags reality by quite some time because the numbers have to be crunched and analyzed) but "on average, they put the odds of recession in the next year at 29%, up from 17% only a month earlier; 10 of them put the odds at 40% or higher."
Interest rates aren't keeping up with inflation, the stock market is drowning in losses, gold and treasuries are being bid up, and in the midst of all this, workers' compensation rates across nearly all states are on the rise - with NCCI tagging Florida with a rather hefty 8.9% rise announced yesterday, on top of last year's 7.8%.
Let's look at other examples of the trouble facing not just the insurance industry, but the entire economy.
Verizon's East Coast operations are saddled with a labor strike, with 45,000 union workers of the land line division of the business not working and presently subsisting on only $200/week of union stipend. That's a lot of people not working and not contributing to the economy.
Bank of America is cutting 3500 jobs, with more cuts likely in the future.
Yields on 10-year Treasuries have sunk to the lowest level since the 1960s, down to 1.9872% yesterday briefly before recovering above 2%.
And I ask myself, where are comp carriers going to put their surplus so they do not not impair their cash flow to pay claims and expenses let alone attempt to turn a profit?
At least in theory corporate borrowers can get money on the cheap, and perhaps that's the strategy of the insurance industry - sell bonds at historically unbelievably low rates, then sit on the cash to use as needed until the economy improves.
Still I can't help but think that the businesses tied to the financial industry - and insurance is one of the mainstays of the financial industry - are in for a very, very rough time over the next couple of years, as though we haven't been through tough times already. This means that all businesses that either feed off of insurance lines, or require insurance - i.e. virtually the entire U.S. economy - are going to see increased rates and premiums, decreased services and payments, and overall contraction of capacity.
Insurance is all about managing risk, and if I were selling insurance one thing I would NOT be doing right now is taking on more risk.
Indeed, the chiefs of both Liberty Mutual and AIG have recently expressed that their appetite for workers' compensation risk is waning and that they are retreating from the line - I'm sure other carriers are likewise eyeing work comp very warily.
Lawmakers and regulators may again start tweaking systems, implementing new rules and regulations (indeed new the new Administrative Director of the California Division of Workers' Compensation is already eyeing a change in regulations to make utilization review and medical provider networks less complicated and more efficient), but the core basis of workers' compensation insurance - operational positive cash flow - is going to be a relatively scarce resource should the U.S. and global economies not reverse course.
What I'm reading in the gloomy financial news though isn't very promising for a near term reversal.
Post a Comment