NEW YORK–As the 2010 Ernst & Young/National Underwriter Life Executive Conference drew to a close Thursday, Steven N. Weisbart, a senior vice president and chief economist for the Insurance Information Institute, provided some key observations that spell out the biggest challenges facing the L&H industry for the next five years.

Relying on a wide array of data, Weisbart compared the effects of the Great Recession to other recent recessions in 2001, the early 1990s, the early 1980s and the 1970s. Across the board, it became clear that the effects of this most recent recession is making an impact on the financial realities of life and health insurance customers in ways that are different from previous recessions. This means that the L&H industry has some rethinking to do if it means to continue growth in what will be a moribund sales environment until 2015.

To that end, a major obstacle erected by the current recession is diminished buying power, marked by slow income growth (which in many cases is completely negated by current rates of inflation) and high unemployment, Weisbart said.

Real GDP always broke 3% immediately following every other recession since the 1980s, Weisbart noted. Right now, median projected growth according to Blue Chip Economic Indicators, an economic surveying firm, project just under 3% for the next five years.

As for unemployment, numbers are holding steady at 9.6%, but comprehensive unemployment figures, which include those who are no longer even looking for work, is up around 17.6%. More importantly, the variance between these unemployment figures is several points higher than it is relative to other recessions, underscoring just how badly joblessness will continue to drag on economic recovery, he said.

To prove the point, Weisbart noted that there are currently over six million people considered long-term unemployed, whose joblessness benefits are soon to expire. Furthermore, it will take at least two years for job levels to reach their pre-recession levels, Weisbart said.

Another element to consider is that consumers are spending down debt, which makes them much more difficult customers to reach for buying products such as life insurance. Wiesbart pointed used new car purchases to illustrate the point. While the number of new vehicle registrations has remained relatively unaffected during the recession years, the numbers of new car purchases plummeted from 16 million-17 million a year before 2008 to 10 million-11 million from 2008 on.

Weisbart said the point of this is that before the recession, new car purchases were replacing millions of old cars each year, but now there are an extra 8 million to10 million used cars on the road, which people will continue driving until they absolutely have to replace them.

If consumers are looking to fund their retirement income or replace their car, Weisbart said, they are going to choose their car. This phenomenon will be a major competitor against the insurance industry.

While Weisbart pointed out that rising taxes (especially on the state and local levels) will also eat into consumer’s buying power just as will rising healthcare costs, what is especially important is the sudden and severe drop in homeowner equity. At present, he said, roughly 28% of homes with a mortgage are either in negative equity or have barely positive equity.

Where this will have an impact on spending is that since 2007, consumers have virtually stopped borrowing against the value of their homes, either because they had nothing to borrow against or because they preferred to pay down existing debts. This breaks with habits since the early 1980s, when consumers borrowed against home equity even during recessions. The ATM of home equity has run dry, Weisbart said.