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Health Care Viewpoints

Viewpoint: Numbers show insurance industry on firm ground

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Dr. John E. Stapleford

Dr. John E.
Guest Columnist

The objective of ECONOMIC INSIGHTS is to bridge the gap between the latest economic data and what it means for Delaware businesses.

What’s happening? 

Within Delaware’s financial services sector the industry of underwriting or selling insurance has been the most stable across the business cycle.

While dropping 10 percent following the bottom of the 2008 recession, Delaware insurance employment regained its footing and is essentially the same as it had been in 1998. Compensation of employees in the industry, that includes wages and employer contributions for pensions and government social insurance, is up 95 percent for employees compared to just a 61 percent increase across all Delaware workers.

Banks in Delaware have experienced the greatest increase in average compensation (139 percent) since 1998 and securities, commodities and financial investments the largest increase in employment (146 percent), as the Delaware insurance industry has provided a steady presence.


Why is it happening? 

The majority of insurance covers basic major threats to well-being. Approximately 56 cents of every premium dollar is spent on life and health and the remaining 44 cents on property/casualty coverage for automobiles, homes and commercial properties. When income drops during a recession, households may quickly cut back on spending at restaurants or expensive trips, but are far less likely to forego insurance coverage for such disastrous possibilities as the sudden loss of life or a house destroying fire.

Since 2010 the growth rate of net insurance premiums written has stabilized around 4 percent per annum while the total losses incurred have been flat. As for all parties, net investment income has been moderate but not volatile. Industry risks are offset by customer collateral and growing secondary markets for insurance based securities.

By holding employment constant, the insurance industry has been able to experience a steady rise in net income after taxes.

The implications for business? 

Across the lines of insurance, life coverage has been the most sensitive to the business cycle. Commercial property and casualty premiums have varied the least. Firms and their investors consider property and casualty insurance as a logical cost of doing sound business. The P/C supply side is competitive and Delaware businesses do not face the threat of abrupt and large increases in premiums.

The current insurance industry wild cards center on regulations. The majority of healthcare insurance coverage comes through Medicaid and Medicare. As these funds bump up against ceilings, to whom will the rising increment of uncovered cost be shifted? Business is a likely target. Finally, there is a movement through government to provide increased access to insurance products for underserved communities and consumers. 

Dr. John E. Stapleford is consulting economist with DECON First. Contact him at john@deconfirst.com

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