The current economic environment favours insurance brokers and fi nancial advisors. Their role as intermediaries will allow them to both reassure customers in these uncertain times and to be the insurer's messenger to the consumer.At the Presidents Luncheon held during the Insurance and Investment Convention in Montreal last November, Louis Regimbal, a partner at Secor, gave a tour of the world economy. He made three stops: Europe, the United States and China.
To begin with, he pointed out that Europe is facing a recession, although some countries are better off than others. “During the good years, several European countries failed to set money aside. As a result, they find themselves with a high level of indebtedness. They have not refinanced their debt and have not reduced it. We should also remember that tax evasion is a national sport in some European countries. The only alternative that remains is for these governments to adopt austerity measures. It's going to be very difficult in some cases. Voters will want to get rid of some governments,” he said.
He noted that Greece has received a great deal of attention in recent months. In his opinion, however, this is just the beginning. “The next country up to bat is Italy. The consequences will be even greater,” he said.
In the United States, we find a certain paradox, said Mr. Regimbal. “We have a consumer who is willing to spend and would like to relive what he experienced in recent years, but is unable to do so. The level of household debt remains high, as does unemployment. On the other hand, there are private companies with a significant amount of liquidity. Google, Microsoft and Apple have $30 billion to $60 billion in capital reserves, but are waiting before spending it, because they are uncertain about the future,” he said.
There is a third player involved in the United States, namely the government. “It has put all kinds of measures into place to limit expenses. The United States is probably doomed to slow growth. It will have an effect on Canada, because the two economies are linked and economic movements are really in a north-south axis,” he said.
As for China, it is an enigma, says Mr. Regimbal. “It has posted 9% growth in recent years and one may wonder if this is sustainable. They have managed to keep inflation at 5.5%, a level that would make us unhappy in Canada. The question that remains to be answered is whether there will be a housing crisis in China, given the speculation,” says Mr. Regimbal.
There is another big unknown in the Chinese situation: the value of its currency. “All the external pressures are working to increase its value, which would result in benefits for the middle class. It would be beneficial for Canada, which supplies raw materials. However, it could curb exports.” Mr. Regimbal says that there is another scenario that would result from a recession in Europe and a prolonged slowdown in the U.S, where the Chinese currency is devalued in order to stimulate demand for the country's finished products.
Ramifications for Canada
He adds that these difficulties also have ramifications for the Canadian insurance industry; as much for the consumer as for the insurer.
“The consumer needs to protect several important assets: his residence, his vehicle and his health. He must grow his retirement savings plan. Right now, he is probably worried, confused, and in shock over the crisis. At the other extreme are the insurers. They have their own reality. Their raw material is capital. In the current environment, it is not a straightforward matter, given the low interest rates, with little respite in the short term. With volatile markets, their flexibility is reduced. The insurer is confronted with a situation where it will want to review its product line. It will move towards simpler products, with lower guarantees than before, with increased pricing, while at the same time trying to meet the needs of the consumer,” he said.
No matter whether he or she is a broker or an advisor, the role of the intermediary will be signficant. “He will be there to inform, reassure, and advise the client. He will also play an important role with the insurer. He will keep it informed, will spur it on, and will engage with it. He is the one who will bring the consumer's message to the insurer. The intermediary will be a wonderful window into the market for manufacturers. They have already recognized this. It will be up to them to take a greater role and provide leadership in this context,” says Mr. Regimbal.