Final Report

The finance and insurance sector industry includes companies that take part in financial transactions and create, liquidate, purchase, and sell financial assets like bonds, securities, and insurance. The leading insurance and finance companies include Bank of America, AIG, Fidelity, Citigroup, JPMorgan Chase, Goldman Sachs, Allianz (Germany), MetLife, AXA (France), BNP Paribas, and Wells Fargo. Some of the world’s financial hubs include New York, London, Singapore, Hong Kong, Seoul, Tokyo, and Zurich. The demand for financial services that are more efficient and sophisticated has been expected to grow in areas such as Asia, specifically in India, China, and Indonesia. Also, for the insurance sector, it has traditionally been looked at as a relatively stable segment in the financial system. The reason behind this is that most balance sheets of the insurer, as opposed to those of the banks, get composed of liabilities relatively illiquid liabilities protecting insurers against the risk of having fast liquidity shortages that can and indeed confront banks (Bureau of Economic Analysis, 2020). The pending exit of Britain from the European Union, also known as Brexit, is expected to lead to a sector of the UK financial services industry is migrating to the eurozone, placing the future status of London doubt as a global financial hub. The paper looks at the GDP growth of the finance and insurance industry as one of its macroeconomic policies and indicators.

The financial market in the US stands out as the most liquid and largest globally. The finance and insurance industry covered for 7.5% (or $1.5 trillion) of US GDP Leadership in such a large, high-growth sector leads into substantial economic activities and indirect and direct jobs in the US. Financial products and services aid in facilitating and financing USs exported agricultural products and manufactured goods (Dun&BradStreet, 2020). In 2017, there was the exportation of around $114.5 billion in insurance and financial services in the US and showed a surplus of $40.9 billion surpluses in insurance trade and financial services trade (the financial insurance and services, and this excludes re-insurance, proved to have an excess of around $69.6 billion). The insurance and financial services sectors employed more than 6.4 million individuals by the end of 2018.

The US insurance and financial sector comprise around 475, 000 establishment (single-location units and companies of many location companies) with a mixed annual revenue of about $4.5 trillion. Investing in the insurance and financing services industry offers significant advantages for financial companies. From 2018, at least 29 financial service entities out of all the companies listed in the list of Fortune 500 have chosen to locate their headquarters in the US to take advantage of its competitive, creative, and detailed financial service sector. The industry will be offering the most significant array of products and financial instruments in allowing consumers to manage risk, meet the business requirement, and creating wealth (Dun&BradStreet, 2020). The industry’s GDP has also been impacted by its asset management subsector, as shown in its diversity and depth. Asset managers in the US have been meeting the pension management requirements of over 60% of the world’s retirement markets.

One of the essential macroeconomic indicators the industry needs to monitor includes the gross domestic product (GDP). The importance comes with GDP comes from the fact that it’s widely used in measuring the economy’s production or output.  It enables central banks, such as those previously mentioned, and policymakers to judge if the economy is expanding or contracting. Its also used to determine whether it may require a need or boost to be somewhat restrained, as well as whether threats like rampant inflation and recession loom on the horizon (Bureau of Economic Analysis, 2020). Some of the recent trends in GPD include the increase of private service financial and insurance services as partly being offset by slight decreases in industries producing goods, the government sector increasing. Overally,18 of 22 industry groups led to a 2.2% increase in real GDP in the recent fourth financial quarter, as shown in figure 1 below:

Figure 1: Real GDP and Real Value Added by Sector

Nobody is likely to accuse the finance and insurance industry as being the most lucrative industry, but it may prove to be just as important. However, with technologies shaping the world’s future in a manner most people are anticipating, insurers may need to keep up with increased market saturation and increased competition. The finance and insurance industry’s future will lie in utility value. The cost that comes with customer acquisition as extremely high, as well as a majority of insurance companies, is currently taking place solely in terms of transactional value, as opposed to utility value. The meaning behind this is that market resources, and efforts are getting spent luring and signing in new clients, but after the signing of the contract is made, very little will be made in providing continued value. It’s also referred to as utility value (ECB, 2009). To better compete, insurance and finance companies will need to begin concentrating on utility value and should provide customers with the amount which entices them to be still functional.

References

Bureau of Economic Analysis. (2020, April 6). Gross Domestic Product by Industry: Fourth Quarter and Year 2019. Retrieved June 2, 2020, from https://www.bea.gov/news/2020/gross-domestic-product-industry-fourth-quarter-and-year-2019

Dun&BradStreet. (2020, April 20). Finance & Insurance Sector Industry Profile. Retrieved June 2, 2020, from http://www.firstresearch.com/Industry-Research/Finance-and-Insurance-Sector.html

ECB. (2009, December ). The Importance of Insurance Companies. Financial Stability Review, 160-168.