There are plenty of reasons to assume an economic downturn is no time to innovate. Here’s why that logic is wrong, and the truth about innovating in uncertain economic times.
Economic downturns can span from short-lived blips like the 2-month-long COVID recession to deep and long periods of turmoil like The Great Depression. Whether they’re short or long, shallow or deep, recessions and downturns are an ongoing part of the world economy’s up-and-down cycle.
When times are good, common sense dictates that money is flowing. Investors invest, companies are profitable, the stock market skyrockets, and the workforce is strong. Many of these beliefs may be true. However, if common sense also tells you that a recession spells doom for businesses and would-be innovators, that’s not necessarily the case.
Since 2023 has, thus far, contained an Emmy-winning level of “will they/won’t they” drama regarding whether we’re headed for (or already in) a recession or not, it seems like a good time to remind everyone that even if a recession occurs, it’s not a death sentence for creativity, innovation, and investment. Below we’ll cover a sampling of the myths about business innovation during shaky economic times.
1. Businesses are more fiscally conservative during recessions, so there’s no room for disruption
We’re not saying that businesses don’t look for ways to cut costs and become leaner during lean times. They certainly do, and if you’re an insurance agency, carrier, or MGA/MGU looking to reduce excess operational spending by automating your compliance, we’ve got a great solution you should check out!
What we are saying is that the need for lower costs and greater efficiency that businesses prioritize during a period of recession can actually create opportunities for innovation and disruption. As established companies may be slow to adapt or invest in new technologies, startups and entrepreneurs can seize the chance to fill gaps in the market and introduce innovative solutions that can outperform traditional offerings.
How this translates to the insurance industry is, let’s say, for example, you’re an independent insurance agency competing for clients among many other similarly sized agencies in your market. If, in your efforts to adapt to an economic downturn and run leaner, you adopt a technology that gets your producers out selling more quickly than other agencies, you might find your business actually improves.
When you free up producers to spend time working their leads and building client relationships, the client benefits from that extra time and attention. While other agencies may be short-sightedly scaling back on anything that isn’t keeping the power on, your agency will make gains that continue to pay off long after the recession ends.
2. Recessions lead to a lack of resources which makes it harder for new companies or inventions to emerge
COVID-19-related supply chain disruptions aside, recessions often have the effect of decreasing labor costs, the price of office space, and raw materials. When these costs lower, so does the barrier of entry for a new business or new product getting to market. This means people with great ideas might be able to afford to launch their business when they couldn’t in more booming economic times.
Within the insurance industry, someone who wants to start an independent agency but has been held back by the high price of office real estate and high labor costs may find that it’s more affordable to start the business during a recession. Nothing good (like low costs) lasts forever, but it can give a new business some time to get up and running before cost increases hit.
3. High unemployment rates during a recession are bad for businesses
Quite the opposite, in fact! If economic fears lead companies to lay off valuable workers, a recession can be a great time for new businesses to capitalize on the available talent. Even if we’re not technically in a recession right now, you can already see this happening, as tech industry layoffs may prove to be a source of valuable talent to the insurance industry.
Today’s economic struggles may be different from the recessions of the past, both in that inflation is still keeping prices and wages high, and unemployment is still extremely low. Still, even on a micro level, businesses would be smart to keep their eyes open for talent they might otherwise not be able to snatch up, if not for other companies performing round after round of recession panic layoffs.
4. Consumers are less willing to try new products and services during an economic downturn
This myth might seem logical, but it’s not entirely true. Consumers may become more cautious with their spending during a recession, but their new spending habits aren’t a dealbreaker for innovations. On the contrary, as consumers want to spend less, it challenges businesses to find new ways of doing things that deliver what consumers want for less money. This might open the door for a technological innovation that changes the way a product’s made or distributed.
In the insurance industry, economic uncertainty can lead consumers to want more protection. They might want to buy more of the types of insurance they already have, or they might even want entirely new types of insurance to protect them from financial losses they once could afford but now can’t. This can be an opportunity for carriers and agencies to develop new products and provide them to more people.
5. A recession stifles innovation because it forces businesses to focus on survival instead of growth
Businesses may fear overextending their finances during an economic downturn, and thus cut back on the types of investments they need to fuel major growth. We’ve already talked about why this isn’t a great idea when it comes to investments in insurtech, but it’s also true that a recession doesn’t have to be a growth-killer in any sense.
In fact, as businesses try to find ways to run leaner, they may realize new technology is actually the answer. During a recession, businesses are hungry for ways to cut costs and increase productivity. Managers whose companies institute hiring freezes during tough economic times have a lot of incentive to keep the employees they have, which can often mean investing in solutions that make those employees’ jobs easier. All of these motivations provide ample opportunities for new startups to present solutions to current challenges.
In the insurance industry, getting an insurtech solution that automates some of the most manual and tedious parts of people’s jobs, lets humans focus on things they actually want to be doing, and builds compliance and cost savings into the process automatically is a type of innovation that benefits organizations particularly when times are tougher.
6. Investors aren’t interested in funding startups during a recession
We’ve busted this one already, but let’s do it again.
Sure, it can be challenging for new companies with new ideas to raise funds during a recession. On the other hand, some investors are looking for opportunities in a down market. They may believe that backing startups during a recession can yield higher returns in the long run, as these companies are likely to be leaner, more efficient, and more innovative. This means that access to capital may still be available for startups with promising ideas and business models.
In some ways, the companies, products, and ideas that get funded during a recession have to be more valuable and more likely to succeed than those that receive funding during times of plenty. If that’s true, then these fewer and more selected startups (or new products, lines of business, or ideas) should prove even more valuable to the industry as a whole, during and after the recession is over.
7. Economic downturns stifle creativity and discourage entrepreneurs from pursuing new ideas.
Just like businesses are looking for new ways to do more with less, entrepreneurs can find that economic downturns drive their innovation out of necessity. This mindset can lead to breakthrough inventions and business models that might not have emerged during times of economic prosperity. In fact, some of the most successful companies and inventions were born during challenging economic times. Want to know more about that? We’ve got a whole piece to prove it!
Don’t let recession fears fuel your insurance business nightmares
No one wants a recession. But if one’s on the way, you don’t have to let myths and misconceptions lead you to believe your insurance business is doomed. Whether you’re a carrier, agency, or MGA/MGU, a recession can be a time for creative thinking and expanding into new products, services, or markets.
You can start your organization down this track by:
- Not putting the brakes on innovative initiatives you’ve already got underway
- Seeking solutions that both lower costs and improve employee and customer experience in order to retain the staff and clients you already have
- Taking advantage of available talent who could be valuable additions to your organization and may be looking outside their normal realm due to circumstances
If automating compliance for cost savings, risk reduction, and a better producer experience sounds like something that could help your organization weather an economic downturn, see how AgentSync can help.