Financial Services News

Economy, inflation are top of mind for financial services firms in 2023 – InsuranceNewsNet

  • A recession and unwinding of inflationary shocks of the past 18 months could allow inflation to decline to under 3% on a year-over-year basis by year-end 2023.
  • A moderate recession in the first half of 2023 may lead to a contraction for the year as a whole, marked by -1.3% U.S. GDP (gross domestic product) growth.
  • Once investors begin to anticipate economic and earnings recovery, the S&P 500 Index is forecasted to gain into year-end. S&P 500 Index target range is 4,300 to 4,500 for year-end 2023.
  • Federal funds rate forecast of 3.50% to 3.75% anticipates multiple policy interest-rate reductions after rates reach a peak above 4.50% early in 2023.

What’s in store for life insurance?

On the life insurance front, Elaine Tumicki said that the economic environment will likely have an impact on sales. Tumicki is LIMRA’s corporate vice president and director of insurance product research.

With high interest rates and inflation, consumers have less disposable income to purchase anything, including life insurance, Tumicki explained. Persistent inflation poses a risk to middle-market sales for term and whole life insurance.

To the extent that wage growth cannot keep pace with elevated inflation, the effects may even extend to consumers in higher-income brackets, she added. “We’re also coming off strong life insurance premium growth in 2021 and into 2022. By third quarter 2022, U.S. individual life insurance premium had dropped by 5%.”

Early in the pandemic, there was a boost in premium and policy count when mortality was front and center for many consumers, she added. The economic environment, combined with the pandemic easing, appears to have cooled the excess consumer demand for life insurance.

“In 2022, we are forecasting U.S. life insurance premium sales to be flat, with positive growth in two of five product lines, variable and indexed UL. As corrections continue into 2023, we see the risk of sales possibly being lower than in 2022. A lot of it depends on how the economic environment plays out, but generally we don’t expect strong growth for any life insurance product line,” she said.

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected]

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