3 Things Insurance Firms Should Consider Before the Next Recession

A combination of global events, including successive lockdowns and Russia’s invasion of Ukraine, combined with the increased cost of living which is likely to result in a fall in spending, has led many experts to predict an upcoming recession.

Meta recently fired 11,000 people and Twitter recently fired 3,700 people, accounting for 50% of twitters workforce. Amazon is expected to cut 10,000 people from its workforce and companies, such as Apple and Google, are predicted to announce cuts soon. This trend has also affected the financial services industry as online payment giant, stripe, and cryptocurrency exchange platform, Coinbase, have released 1,100 workers.

All these companies have identified the possibility of a recession as one of the major contributing factors to mass layoffs, as they are expecting less surplus capital to be in consumers' pockets.

What should your insurance firm consider to help navigate the possible upcoming recession?

1. How will customers' behaviours and habits shift?

There will likely be less demand for the products and services insurance firms provide.

The Association of British Insurers showed that the average price of home insurance has dropped by 7%, and the average cost of content-related insurance by 11%. Additionally, it's Motor Insurance tracker found that the average price paid for motor insurance had dropped by 5% – the lowest number in seven years.

Insurance firms should look to double down on voicing the importance of insurance. During times of recession, marketing and advertising is often one of the first budgets to be cut, but these are times when your insurance firm should be investing more into these areas. When the recession ends and your customers are ready to purchase a product or service, your company should be the first thing that jumps into their mind rather than your competitors. Brand recognition during troubling times also helps build trust and loyalty.

2. Insurance firms will face increased scrutiny

Customers are more likely to face financial hardships during recessions and may become more vulnerable. Therefore, during recessions, the scrutiny of financial services becomes even more crucial. The FCA will likely put more emphasis on the new Consumer Duty and protections for customers in vulnerable circumstances, to shield consumers from exploitation. This will mean insurance firms will have to be careful to ensure they remain compliant and potentially adapt quickly to further changing policies.

3. Insurance firms may have to evaluate their business models

Leadership must navigate the next economic phase carefully. If it is complacent, an insurer may fall victim to poorly performing processes, leaving it unable to compete with its competitors. On the other hand, investing in the wrong assets, technologies, or strategies to win more business may lead to insurers taking on more risk than they can handle, and expanding their expenses beyond what is sustainable.

Rather than cutting headcount, insurance firms should instead look at the most efficient way of increasing revenue. Technology, people, products, and decisions that provide long-term sustainable growth should be invested in, so your firm is in a good position post-recession and potentially at an advantage over your competitors.

Investing in employee development can be a useful method for insurance firms to ensure both sustainability and compliance. Blended learning can offer an efficient and engaging way to train staff. The Development Zone and Searchlight solutions have created a blended learning experience specifically for the insurance industry. To learn more about the Development Zone click here and to learn more about Searchlight Solutions click here.