As aware as we all are about the slowing of our economy, how the downturn can affect the myriad aspects of operating a business can be more ambiguous and sometimes overlooked. This month, we examine how insurance coverage and the claims process are affected when the market takes a dip.
How might a slowing economy affect the relationship I have with my insurance company?
Insurers make money by collecting premiums and investing the proceeds. Their profit is the return on their investment, reduced by expenses like claim payments. As returns on investments become smaller, pressure increases to reduce claim-payment expenses or spread them out over time. In a slowing economy, one can expect increased scrutiny of claims, with the result being that claims typically paid quickly in a robust market are likely to meet resistance in a slow one. In addition, the time-value of money dictates that certain claims paid during good times might well, in an economic downturn, be litigated with the goal of a discounted settlement, or to take advantage of the lengthy time required to resolve disputes in court. Expect increased claim scrutiny as insurers try to better manage their cash flow.