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China Banking Crisis May Have Effect On US Insurers

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The China Banking Crisis and Insurance Markets

The China banking crisis that is supposed to arrive on January 31st may have an effect on US insurers.   A few articles over the last three month warned of a possible money crunch in China.  An article appeared in some of the fringe economic analysis websites such as this one  concerning a January 31st mega default on loans back by a Chinese bank.

Map Of China Banking Crisis In Red Color Flag Graphic
(c) stockunlimited

The link in the first paragraph is to a website that looked to be more alarmist than truthful.  This article from Forbes on the same China default gave the alarmist website credibility very quickly.   This situation may never occur  with the world’s largest bank on January 31st.  Then again, it is a pending matter.As mentioned in this article on what actually drives insurance carriers’ rates , the rate of investment return will dictate much of the insurance carriers’ premium levels.  If any company’s investments are lagging due to low investment rates, the shortcoming is usually balanced with an increase in prices.  Insurance carriers are no different.

The other side of the coin is the debt owed by insurers to China.  The level of debt owed to China has now reached record levels as of five days ago.  Most of the debt is incurred by US banks.  One has to think that insurers  are in step with debt owed by the major bank.

At some point if China is experiencing bank defaults or reaches its limit of lending to the US, a money-tightening will occur no matter how much the Fed is pumping into the economy.  Money scarcity among banks will also cause the insurance marketplace to harden in a very short time.

Beijng China Banking Crisis Forbidden city statue
Wikipedia – CEphoto, Uwe Aranas

If there is enough of a funds scarcity,  the insurers will have to begin cherry-picking their client base.  The only way for carriers to be able to make up for the lack of funds is to reduce their risk.  No one can blame them after the last financial crisis.

Next up – Preparing For A Hard Market – easier than you may think….

 

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James Moore

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Mgmt Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

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  • Bloomberg Business News
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  • Risk & Insurance Magazine
  • Insurance Journal
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