Examples of factors affecting or expected to affect the financial and insurance sectors include the COVID-19 pandemic, the US election, climate change issues and policies, COVID-19 relief package, and changes in regulations and policies.
1. COVID-19 Pandemic
- The current COVID-19 global pandemic is one of the biggest issues that has greatly impacted the financial and insurance sectors in recent years.
- With over 873,000 confirmed cases globally and over 43,000 deaths, the pandemic remains a key concern with no end in sight.
- The uncertainty about when the virus contained, closure of borders and shutting down of economic activities in the US and beyond have negatively impacted the financial and insurance sector.
- Global stocks have lost about $11 trillion in value, and Euler Hermes estimates that coronavirus will cost $320 billion of trade losses in each quarter this year.
- Insurers invest about half of its assets under management in government bonds and the US “10-year bond yields have more than halved since the end of 2019.”
2. US ELECTION
- The US election is another example of a key issue expected to affect the financial market this year.
- A majority of financial industry bosses interviewed by the Financial Times consistently mentioned uncertainty about the US election as a key factor that will impact the financial industry this year.
- This view is also echoed in the 2020 financial outlook information compiled by Bloomberg based on expert analysis from over 500 leading financial institutions.
- According to US Banks analysts, “in any given 12-month period, analysts saw equities generally providing gains of about 8.5 percent — but in the year leading up to a presidential election, gains totaled less than 6 percent. Bond markets provided similar results, with returns of around 6.5 percent in the year leading up to a presidential election, compared with their more typical 7.5 percent in any given 12-month period.”
3. Trade War
- The China-US trade war is another key factor is expected to impact the US financial and insurance sector.
- A majority of the financial industry bosses interviewed by the Financial Times consistently noted that the US-China trade war/negotiation is a key factor that will impact the financial industry this year.
- This view is also echoed in the 2020 financial outlook information compiled by Bloomberg based on expert analysis from over 500 leading financial institutions. Financial institutions such as BMO Capital Markets, Bank of America, Goldman Sachs, Northern Trust, Schroders, among others all mentioned trade war as one of the key factors that will affect the industry in 2020.
- According to a Wells Fargo analyst, the impact of the trade dispute on the financial industry may “become larger as the US-China tariff dispute extends into 2020 and further impacts manufacturing companies in the domestic economy. For example, direct signs of economic stress may rise as lending slows.”
4. Coronavirus Relief Aid
- The $2.2 trillion Coronavirus relief package is another example of a major factor that will have a huge impact on the financial and insurance industry in 2020.
- In the wake of the devastating effect from the Coronavirus, Congress passed a $2.2 trillion relief package to help businesses and Americans survive the period.
- Big banks in the US such as Bank of America and JP Morgan had sought a relief package from the federal government to enable them to cope with the impact of Coronavirus.
- The relief bill also authorizes “the Federal Deposit Insurance Corp. to revive its crisis-era program backstopping bank-issued debt and noninterest-bearing transaction deposits that exceed the FDIC’s $250,000 limit.”
- The signing of the bill into law by Donald Trump resulted in the Dow surging 1,352 points.
5. Climate Change
- Climate Change is another key factor expected to impact the finance and insurance industry in 2020.
- According to analysts, economic losses due to natural hazards in 2019 was worth about $150 billion in 2019.
- There is a growing concern among industry experts on the ability of the insurance industry to afford flood risk in 2020 and beyond. The US National Flood Insurance Program (NFIP) owes the US Treasury about $20 billion, despite the fact the federal government forgave $16 billion in NFIP debt recently.
- In 2019, only $13 billion of the total $82 billion in flood risk was insured globally but that is expected to change in the coming years.
- Some analysts in the finance industry also predict that central banks may expand “their mandates to incorporate climate change policies.”
6. Regulation and Policies
- Federal government regulation and policies are examples of factors that could greatly impact the financial and insurance industry.
- Financial industry bosses interviewed by the Financial Times state that potential regulatory and policy change in the US will have a significant impact on the financial industry this year.
- According to a research paper provided by Deloitte, the impact regulatory changes may have in the US insurance industry in 2020 “will likely span a wide range of areas, including product offerings; conflicts analysis; producer compensation and incentives; various client disclosures; documentation to support producer recommendations; and supervisory and compliance policies, procedures, monitoring mechanisms, and record-keeping.”
Our research team relied on interviews of experts and industry analysis from reputable firms such as Bloomberg and Deloitte to select examples of factors that are expected to significantly affect the financial and insurance sectors.