The recession hits insurance...

And the blowback will affect farmers. While many eyes are focused on newly unemployed folks losing medical insurance, other parts of the industry are seeing the effects of consumers under strain.

To some extent, auto insurance is recession-resistant because drivers have to have coverage. But Allstate Corp. officials confirmed Thursday that the recession is causing its auto insurance policyholders to look for ways to reduce premiums.

"They are dropping collision [coverage], going to higher deductibles, going to lower limits," George Ruebenson, president of Allstate Protection, said during a conference call to discuss the company's fourth-quarter financial results.

A premium is the price an insurer charges for coverage. Collision coverage pays for the damage to a policyholder's car in an accident, while a deductible is the amount of the loss that's paid by the policyholder. A limit is the maximum amount of coverage paid for a particular loss.

"We're seeing a change from a lot of platinum sales at Your Choice Auto to more of value, where people take a lower-premium policy," Ruebenson said. [More]

This time the meltdown in asset values and investments doubles the whammy of customers with less to spend, and more immediate fears to allay than most insurance policies cover.   Long-term care insurance seems like a luxury when you're having trouble making car payments.

"The financial crisis has hit the life insurance industry hard," said Terence Martin, analyst at Conning Research & Consulting.

The company projects results for 2008 to indicate a drop in ending surplus plus AVR of about $75 billion to $237 billion -- a 24% decline from 2007.

“The volatile equity markets and interest rates are challenging the investment and hedging skills of insurers,” Martin said. “Several large insurance companies, particularly individual annuity companies, have seen significant decreases in assets and surplus, resulting in an urgent need to raise capital at a time when capital markets are constrained."

"There is a great deal of volatility surrounding our projections for 2008-2010," said Stephan Christiansen, director of research at Conning. "The setting of reserves, the recognition and timing of asset impairments, and the impact of hedging can each have significant effects on financial results. From the perspective of life insurers, the financial crisis began in earnest in the fourth quarter of 2008. So some of these issues may affect 2008 results, while the effect of others may be delayed until 2009 or 2010, and the timing and impact will vary by company. That said, 2008 will be a watershed year, and we predict a significant consolidation of the industry." [More]

With the strong funding reliance on insurance by state Farm Bureaus,  some are also struggling to adapt their business model. 

FBL Financial is laying off 76 employees nationwide, with most of those cuts affecting the West Des Moines home office. CEO James Noyce says the move is necessary, so the company can focus on long term vitality under the current economy and financial markets.

FBL Financial is also looking for other ways to reduce costs, other than staff reductions. It has already eliminated positions that are open and frozen officer-level salaries. For most of the laid off workers, today will be their last day on the job. [More]

Farm Bureau has enjoyed a robust lobbying presence thanks to brilliant decisions by farmer boards many decades ago to get into insurance.  I have always considered FB to be the most professionally staffed, and competently run insurance subsidiary in the nation. Unlike membership-funded farm organizations like Corn Growers, the massive FB revenue stream from well-managed insurance companies provided ample revenue, laughably low dues, and curiously perverted membership numbers. Only the USB can match their funding prowess - but (ahem) that has become a whole 'nother story lately.

Like so many cash cows, insurance companies are being drained by eroding investments as a first attack.  But with more low-end ("legal-for-less") competition and freshly impoversished customers, there maybe a sea change in how we view the risks and trade-offs from insurance as a whole. "Walmarting" car and house insurance may be a play.

This marketing challenge could not come at a worse time.  With low returns from investments, premiums may have rise to cover more of the actual cost of insurance, unlike the happier days of plummeting life insurance premiums due to rich investment revenues.

Will whole-life fade in favor of term?  Seems plausible.  Will minimum coverage become the norm? I think we're headed there now, and will accelerate as our cars age (we're not buying new ones, remember?) It sure seems that way looking at TV ads, anyway.


The Great Recession.  You can run, but you can't hide.