On the whole, the Trump victory in the 2016 represents a net positive for the insurance industry. That’s not just us saying that: That was the conclusion of an A.M Best survey of insurance professionals conducted last March.
Moreover, financial and insurance advisors overwhelmingly voted for Trump over Clinton, 71 to 19 percent.
Obviously, it’s still very early in the game to tell what actions the incoming Trump administration is likely to take. The Trump campaign wasn’t exactly forthcoming with details during the election season. But now that Trump is building his cabinet and team of senior advisors, we’re starting to get a more solid reading on the Trump administration’s probable direction on a number of key subjects.
Practice Management Issues
At the end of November, a federal judge in Texas blocked implementation of the new Department of Labor overtime regulations, which were originally scheduled to take effect on December 1st. These rules would have nearly doubled the threshold at which salaried workers cease to be entitled to overtime pay for hours worked over 40 in a given week.
Had Clinton won, her administration would likely have pushed to win an appeal to get the Obama-era regulations to take effect. A Trump administration is more likely to let the regulation die in the courts for the time being – welcome news for most employers. This issue is, of course, of interest to any insurance agency that has salaried staff that would otherwise potentially become entitled to overtime pay.
Additionally, a repeal of the ACA would involve one major sweetener for agency principals: The Affordable Care Act imposed a 3.8 percent surtax on capital gains for some sellers who meet certain adjusted gross income thresholds. This tax includes gains from the sale of insurance agencies and other businesses. A repeal of the ACA would mean a repeal of this tax.
Federal Power Issues
An incoming Trump administration is in many ways a victory for those who have resisted intrusive or extensive federal regulation – including regulation of the insurance industry, at least in principle.
Leigh Ann Pusey, president and CEO of the American Insurance Association, a leading P&C insurance industry group, issued a statement, saying, “We… anticipate a more balanced approach to regulations that will allow the industry to grow and develop new markets that respond to technological advances, such as telematics, big data and autonomous vehicles.” She also expressed hope that with Republicans in control of both houses of Congress and the White House, that the government can make progress on a legislative “log jam” and pass legislation favorable to insurance and to the business we serve.
However, insurance professionals who believe in the traditional state regulation of insurance contracts have reason to be concerned about a Trump presidency. Trump has called publicly to allow insurance companies to sell policies across state lines. While it’s a popular measure with the voting public, it also kicks the door wide open to federal intrusion: As soon as insurance is sold across state lines, the federal government can invoke the Commerce Clause, the McCarran-Ferguson Act will be turned on its head, and in the blink of an eye, the federal government can start regulating insurance contracts like securities. Industry professionals should be alert to this possibility.
On the other hand, Trump has also called for the repeal of the Wall Street Reform and Consumer Protection Act, more commonly known as the Dodd-Frank law. If Dodd-Frank is repealed, or significantly defanged, it could have the effect of removing or lightening some regulatory burdens on some insurance carriers. A Trump Administration could make repeal of the Federal Insurance Office more likely – a move that has long been favored by the National Association of Professional Insurance Agents.
The National Flood Insurance Program could see some changes as well. It’s up for renewal in 2017. Some reform-minded voices in Congress have called for a greater role for private insurance in the NFIP and even for a full-scale privatization.
The Independent Insurance Agents & Brokers of America has come out in strong support for extending the authorization for the law. A Trump administration will probably be friendly to efforts to expand the role of private carriers in the NFIP.
One possible starting point will be to pass H.R. 2901 – the Flood Insurance Market Parity and Modernization Act. The Act Sailed through the House last year on a unanimous voice vote.
The Affordable Care Act
Zeroing on the ACA, Trump’s recent selection of Tom Price (R-Ga.) to be his Secretary of Health & Human Services indicates to us that the President-Elect aims to keep his campaign promise to repeal and replace the controversial law. A former orthopedic surgeon himself, Rep. Price has been an ardent opponent of the ACA in Congress for years, and is a leading sponsor and architect of the Empowering Patients First Act, an alternative to the ACA which has been introduced in Congress every year since 2010.
EPFA would repeal the ACA entirely, eliminating the ACA’s provisions on pre-existing conditions and replacing income-based subsidies with age-based tax credits. Most significantly for the agent, the ACA would eliminate the federal exchanges – possibly opening up more opportunities for the agent in the process.
Life Insurance & Annuity Issues
Fitch Ratings assesses that a rollback of the Department of Labor fiduciary rules, or at least a delay in their target implementation date of April 17th is likely. However, a full repeal of the fiduciary rule is unlikely to be one of Trump’s ‘hills to die on.” Advisors who work with clients on retirement planning issues should get ready to be held to a new and tougher standard.
Likewise, the generous favorable tax treatment of life insurance contracts and annuities could potentially come up for review. While Trump has not specifically called for Congress to remove or limit these tax benefits, such as the tax-free death benefit or the tax-deferred accumulation of cash value in permanent life insurance policies, any sweeping changes to the tax code could jeopardize the tax advantages these products enjoy under current law.
A repeal of the estate tax is likely, which will eliminate one major selling point for life insurance to wealthier families – but there are still many reasons to own life insurance besides to provide liquidity to pay estate taxes.