A “perfect storm” is an expression that describes an event where a rare combination of circumstances will aggravate a situation drastically. To those of us in the insurance and financial service industry, this seems to be exactly what lies ahead for our business. Understanding the impact of this “perfect storm” on our business model may be critical to not only growing but sustaining our book of business now and in the future.
Remember the S&L crisis of the early 1980s? Or the commercial banking crisis of the late 1980s (from 1988 to 1992, 905 banks failed). Or the 1997-98 Asian financial crisis, which sent South Korea, Indonesia, and other countries on a boom-bust roller coaster?
What distinguishes this crisis?
The banks and S&Ls were so weakened by previous financial crises that they lost their primacy. “Securitization” became the norm. This entailed bundling of mortgages, an increase in credit-card debt, and putting other loans into bond-like instruments that were sold to all manner of investors. “Subprime” mortgages were also made to weaker borrowers and subsequently “securitized.” Therein lays the epicenter of the current economic condition.
New and existing home sales today are at drastic lows. Consumer sentiment is extremely weak. Auto sales seem to have hit a floor not seen in decades. The unemployment rate remains close to double-digits, and higher in some areas of the country.
“Things can get worse,” said Martin Feldstein, a professor at Harvard University in Cambridge, Mass., and president emeritus of the National Bureau of Economic Research (NBER). “When the economy is moving forward at a very slow pace, very close to zero, the risk is we could slip over into the negative side of zero.”
On the other hand, “I tend to be cautiously optimistic about growth,” said Harvard professor James Stock, who is also a member of the NBER’s Business Cycle Dating Committee. “All the excesses have been corrected.” A double dip is “quite unlikely,” he added.
So what are some things we can do to survive in the “perfect storm” of the coming economic changes facing our industry?
Define the selling process in your business model
In its broadest sense selling is the process that brings about a desired change in the behavior of prospects using needs-based techniques.