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    Insurance | 3 min read

    Supporting Your Borrowers Through an Economic Downturn

    After two years of navigating disruptions to the economy following the COVID-19 pandemic, experiencing historic highs and lows in the labor market, cleaning up a global supply chain mess, and making recovery gains, it would be nice if we could enjoy a period of relative calm.

    Unfortunately, the conflict between Russia and Ukraine seems to be steering the economy in the other direction.

    Here are five signs we’re headed toward a period of increased economic uncertainty in 2022.

    1. Conflict Between Russia and Ukraine

    The Russian invasion of Ukraine began on February 24, 2022, and could have far-reaching impacts on the American economy, which is already trying to recover from the effects of the COVID-19 pandemic.

    According to the New York Times, “Russia’s invasion of Ukraine could have economic repercussions globally and in the United States, ramping up uncertainty, roiling commodity markets and potentially pushing up inflation as gas and food prices rise around the world.

    The United States imports relatively little directly from Russia, but a commodities crunch caused by a conflict could have effects that at least temporarily drive up prices for raw materials and finished goods as much of the world, including the United States, is experiencing rapid inflation.

    Global unrest could also spook American consumers, prompting them to cut back on spending and other economic activity.”

    2. Skyrocketing Gas Prices

    The average price for a gallon of regular gasoline in San Francisco hit the $5 mark in late February 2022 following Russia’s invasion of Ukraine. That's the first time a U.S. city has hit an average that high.

    A week later, the price of oil jumped to $139 a barrel at one point, the highest price in nearly 14 years, while wholesale gas prices for next-day delivery more than doubled.

    This was soon followed by President Biden’s announcement that the U.S. is banning Russian oil imports, which is expected to increase the price consumers are paying at the pump even more.

    3. Rising Inflation

    Inflation and consumer prices are rising at their fastest annual pace in 40 years. The conflict between Russia and Ukraine is expected to exasperate this trend.

    According to CNBC, “Prices may be going up, especially for gasoline (and indeed already have). Costs for food and goods like smartphones may also rise, according to economists. Inflation would largely result from shortages and rising costs of raw materials like oil, wheat, and metals like palladium—all of which Russia is a major producer.”

    4. Rising Interest Rates

    According to Forbes, “With the Federal Reserve forced to raise short-term interest rates at the March meeting due to rising inflation, the odds that our central bank could be forced to break inflation and unintentionally break the economy are indeed rising. The market continues to price in over six rate hikes from the Fed despite the current turmoil. While it has not yet inverted, the yield curve has continued to march closer to signaling a future recession.”

    5. Wage Increases Not Keeping Pace with Rising Inflation and Cost of Living

    Wages increased by 4-5% in 2021; however, headline inflation increased by 7.5%, resulting in a decrease in consumer purchasing power (real wages). Inevitably, this will lead to a strain on consumer balance sheets and an increase in delinquencies in the coming year.

    Supporting Your Borrowers through an Economic Downturn

    With such a thick fog of uncertainty surrounding the economy, struggling to make loan payments with a reduced or lost income is the last burden your borrowers should have to bear.

    Unfortunately, an unexpected total disability or death in one of your borrower’s lives could significantly disrupt their household’s income level—and thus standard of living—in an instant, making financial commitments difficult to meet.

    If your financial institution wants to offer your borrowers value by helping protect their credit in such circumstances, consider recommending payment protection products like credit life and disability and/or involuntary unemployment insurance, or a debt cancellation program.

    Now more than ever, your borrowers could use the peace of mind that comes with knowing their loans are covered if the worst happens.

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    Joan Cleveland, CLU, ChFC, REBC

    Joan Cleveland, CLU, ChFC, REBC leads SWBC Life Insurance Company as President and CEO. With more than 30 years of experience in the life insurance industry. She holds her Agent licenses for Life, Accident, Health Insurance, and has multiple FINRA securities Licenses. Joan is a frequent industry speaker and media spokesperson. She is a member of the Board of Directors of the Consumer Credit Insurance Association, the Texas Association of Life and Health Insurers, as well as the Life Insurers Council. In addition, she is chair of LIMRA’s Strategic Marketing Issues Committee.

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