Broker CEO Forum: ‘Difficult to manage’ economic turmoil will last until 2024 – RSM

A recessionary economic environment that will impact on claims inflation and the cost of business for the insurance sector will only begin to recover in 2024, RSM economist Tom Pugh predicted.

Speaking in front of the assembled broker chief executives at Insurance Times’ exclusive, annual Broker CEO Forum – held on 13 October 2022 – Pugh said: “[The insurance sector’s] costs are going up, but exactly the same things pushing up your costs are squeezing household budgets, which is very difficult to manage.”

He explained that this economic situation would “realistically continue for the next year, while we’re in a recession” and it would take until 2024 before the economy recovered.

A recession is when the economy sees negative growth for at least two subsequent quarters. 

Pugh predicted that the UK economy had already begun to shrink back in August this year and would continue until at least Q3 2023.

Whether the recession ended at that point would depend “largely on the government’s reaction - whether it shifts to [a policy of] austerity and how it manages its fiscal balance going forward,” he said.

As a point of clarification, Pugh explained that the current recession he felt the economy had already entered was “not a repeat of the [2008] financial crisis or the pandemic” – he added that he expected the UK’s gross domestic product to fall by around 2% during today’s recession, while it fell 6% during the last financial crisis and dropped nearly 20% during the Covid-19 pandemic.

Optimism?

Pugh explained that the financial sector and households in the UK were in “a much stronger position now” than during the 2008 financial crisis, providing cause for optimism that “once we’re through this shock, there’s nothing to stop the economy rebounding”.

However, Pugh did detail that one of the driving factors of the current recession was a “shortage of labour crisis” – he explained that “something like 300,000 fewer people were working in the UK now compared to before the pandemic”.

This was largely due to workers taking long-term sick leave from their jobs, although data is not available to describe the reasons for this leave, said Pugh.

He explained that this made it difficult for the UK economy to increase its economic output because “you don’t have as many people to make things”.

Despite the overall bleak economic outlook, Pugh believes there are opportunities for the insurance sector in this environment.

He added: “There’s not been a time in the last 15 years – excluding the pandemic – when there’s been as many risks.

“Obviously, the role of insurance is to mitigate those risks, so there’s a lot of potential opportunity out there.”