India is in the middle of a recession. Recession is an economic condition where the sales of most of the goods are falling for a sustained period of time. For the past many months we are reading about falling demand in the automobile, steel, cement, FMCG and various other sectors. Even the most popular biscuit manufacturer, Parle G, has reported falling demand, so much so that they are likely to retrench about 10,000 workers. Automobile manufacturers such as Tata Motors and Maruti have also announced lay-offs of their workers.

Recession occurs once in every few years. This is an economic cycle. Demand for goods goes up every year for a few years and then starts to fall. This is also called the trade cycle. When the demand starts to fall, workers loose their jobs, and business firms that do not have the capacity to face falling demand will close down.

The recessionary trends are visible all over the world, particularly amongst the developed countries. But globally the recession has not fully set in, as it has in India. There is no loss of employment in those countries and businesses are not closing down, as it is now happening in India. But the possibility of recession in many countries of the world is high.

How does recession affect life insurance sales?

One of the implications of recession is that people in the organised sector start losing their jobs. This will lead to less spending and therefore less demand for goods, leading to further production cuts by companies and therefore more job losses.

In such an environment, people will not have the confidence to invest in long term assets. Since their employment is not certain, they will hesitate to invest in assets like life insurance, which has long term commitments to pay and also gives benefit in the long run only.

The general tendency of people in a recessionary environment is to keep their savings in the form of cash or near cash such as bank deposits.

So where do we sell life insurance?

Those of us who sold life insurance before the 1990s will recall, that most customers were hesitant to commit themselves to paying premiums for 15 or 20 years. In that period recession was not the reason for such a hesitancy. It was because of low salaries and job insecurity. The same underlying conditions exist today. Job security and loss of income are the primary concerns of an earning individual today.

Life insurance agents will have to look for customers in sectors where the general recession has relatively less impact. Some of these sectors are: government, universities, colleges, schools, farmers who have had a good harvest, road-side business persons, small shop owners, white collared executives in private sector, etc.

Ticket sizes are likely to reduce. It is also important to advice customers that investing in high risk investments during recession is very risky. In a recessionary environment, the share markets and bond markets are likely to experience greater volatility. More the volatility, higher the risk and higher the chances of making a loss on the investment.

How long will the recession last?

How long a recession will last is anybody’s guess. It appears the the recessionary trends in the economy has just begun. It could last anywhere from a few months to years. The Government has already announced some measures to boost consumer confidence and also business confidence. We can only wait with hope that everything turns around for the better soon. There is one more angle to the economic turnaround actually happening. And that angle is the financial sector.

For all practical purposes the financial sector is in a very bad shape. More that Rs. 11,00,000 crores worth of debt is due to the banks from private companies, which the companies are unable to pay. Hence banks have almost stopped lending or reduced their lending to businesses. This has put a brake on production and in turn on fresh job creation. The NBFCs are in a mess too with their liquidity drying up and not having money to pay interest to their lenders and also not have money to lend to businessmen. So even if industrialists want to invest, there is no money available. This aspect too will determine how quickly the Indian economy gets out of recession

It is therefore important for us to look for market segments that are relatively less affected by recession. We need to sit and make a fresh list of prospects for the current market circumstances. Every situation provides opportunities, it is for us to recognize the situation, plan our work and execute the plan.