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A Red Alert from The Council of Insurance Agents & Brokers | November 9, 2016

Inflection Point 2016:
The Election’s Consequences for the Insurance Brokerage Industry


The following memo was prepared by Joel Wood, The Council’s Senior Vice President for Government Affairs.
 
I had a very different memo in mind that I started drafting in my head yesterday afternoon. Good thing that I didn’t actually put it in writing.
 
But like almost everyone I know in Washington—inside-the-beltway, conventional wisdom, establishment DC lobbyists—I blew it on the Presidential. But all the signs were there. They were screaming at me. Brexit. The damage that an obscure socialist senator from Vermont inflicted on Hillary Clinton. My wife, a lobbyist for the domestic steel manufacturing industry, yelling at me that I’m just not getting it.  My visit last Sunday with some cousins in rural West Tennessee—they were Trump all the way, they couldn’t remember the last time they voted, and they couldn’t be polled.  Seven out of 10 Americans don’t like the way things are going. Throw in James Comey and Anthony Weiner…why could I not see that the Band-Aid was about to be ripped off of American politics?
 
You will get all of the introspection, naval-gazing and second-guessing from DC types in the coming weeks and months, and I’ll spare you mine. My purpose here is to try to give you my best sense of what this means for our industry sector.
 
There’s an awful lot of good news. I’m writing that as a Republican. My closest colleague Joel Kopperud (the “other” Joel) is a Democrat, he’s pale as a sheet and shell-shocked (though he was much more worried about Hillary’s prospects of losing than I ever was). I never imagined Republicans would only lose one (or possibly two, depending on the New Hampshire results) in the Senate, and that losses in the House of Representatives would be held to under 10 (a net of six, at this writing).
 
Council member firms contributed mightily to CouncilPAC, our association’s political action committee that supports the campaigns of those candidates who support our issues. Thanks in large part to our CouncilPAC Director Brittany Lindberg (her father, Sen. John Thune of South Dakota, was reelected last night by a 72-28 percent margin!), we raised $1.25 million this year and were able to respond in a big way to congressional Republican leaders seeking our support for candidates in contested races down the stretch. We didn’t lose very many, and we caught some very lucky breaks in many close races for the House and the Senate. We feel that our relationships with congressional leaders—honestly, on both sides of the aisle—are as strong as ever.
 
We don’t often play on individual state issues, but we did in a big way this year on Colorado’s Amendment 69, which would have created a single-payer system that would have destroyed the private marketplace (not only on individual and group insurance, but workers’ comp) in that state. “Colorado Care” went down to an epic defeat—79-21 percent—and there’s no single race that thrilled us more. We are grateful for all who led and helped in this effort, not the least of whom is The Council’s current Chairman, Rob Cohen, Chairman and CEO of Denver’s IMA. He read us the riot act early on that this ballot initiative had to go down by a major margin—at least 60-40—or it would come back to haunt us. We needed the kick, and our members, across the board, responded.
 
So, deep breath on the federal front. Here are some early thoughts.
 

First, the Affordable Care Act

 
While Donald Trump didn’t mention Obamacare as a top priority in his victory speech this morning—focusing instead on jobs and infrastructure—his voters are going to demand early and strong action to “repeal and replace” the law. “All the political predicates are now in place for wholesale changes to the law,” said Stanford’s Lanhee Chin, the policy director for the 2012 Romney campaign.

With a slim majority in the Senate, where 60 votes are required to pass major legislation, you’re going to hear one word repeatedly in the next several months: “Reconciliation.” It’s the complicated budgetary procedure through which legislation affecting taxing and spending can be approved with a simple majority in the Senate. It involves coordinated action between the House and the Senate, and we have no concerns that Senate Majority Leader Mitch McConnell and House Speaker Paul Ryan will be able to navigate this process successfully.
 
There are many questions beyond this. Repeal and replace the ACA with what, exactly? The Trump campaign ran with a laundry list of long-standing GOP proposals—including 1) buying insurance across state borders, 2) tax credits for individuals to purchase health insurance; 3) enhancement of Health Savings Accounts; 4) medical malpractice reform; 5) association health plans. With 17 million Americans receiving their health insurance through the ACA, the off-ramp for the exchanges (which are already cratering, and would have been a major challenge to repair even for Hillary Clinton) is going to be tricky. We’d expect that anyone who legitimately signs up for exchange coverage in this enrollment period will be allowed to keep their coverage throughout 2017. And there will be some transition to high-risk pools.
 
We’re grateful that the Trump campaign never embraced the conservative ideological aversion to employer-based health coverage. Speaker Ryan’s “blueprint” for reform includes some vague language suggesting that the exclusion from taxation for employer plans should be limited for high-income employees (presumably individuals making $250,000 a year or couples making $400,000). We always feel vulnerable in tax reform efforts given the fact that the employer exclusion is the number-one “tax expenditure” of the federal government. Maintaining the strength of the employer-provided system will continue to be our top legislative goal in 2017.
 
ACA advocates are already up in arms, according to today’s Politico, so much so that they’re adopting militaristic language. “This will have tragic consequences for tens of millions of people,” Families USA Ron Pollack said in a statement. “We at Families USA are going to be on a total war footing to make sure this never comes about.  An unlikely savior for the ACA is the healthcare industry itself—because hospitals, drug-makers and even some insurers have benefited from coverage expansion.
 
The Republican base has exceptionally high expectations about the Trump Administration and GOP Congress to uproot the ACA—even though Trump’s own statements have been somewhat inconsistent. Benefits will be very, very high on the congressional agenda in 2017. We look forward to playing a role in this debate, especially with respect to defending the employer system and lifting burdens on clients.
 

Second, property/casualty issues

 
Reauthorization of the federal flood insurance program will occur, one way or another, by the fall of 2017. We’re unsure whether the electoral results will make a major difference in that debate, as it tends to divide among coastal/non-coastal legislators as opposed to Republican-versus-Democrats. But the tensions exist, and House Financial Services Committee Chairman Jeb Hensarling can be expected to immolate himself before he simply allows the program to be reauthorized with higher federal borrowing limits. Sen. Richard Shelby, the current chairman of the Senate Banking Committee, has similar views in favor of actuarial soundness. But due to term-limit constraints on committee chairmen, Shelby is slated to be replaced by Sen. Mike Crapo of Idaho, who formerly was the ranking Republican on the committee. Crapo has been an engaged, respected leader on insurance issues (in particular, TRIA enactment and extension) for decades. There may be some insurance industry circular firing squads on flood insurance issues, and these may be exacerbated by opposition to the Write-You-Own program by incoming Senate Minority Leader Chuck Schumer of New York.
 
Interestingly, Schumer has been a longtime, forceful advocate for the financial services community. All eyes will be on his relationship with Sen. Elizabeth Warren of Massachusetts, a warrior against big financial institutions. Four years from now is forever, but the internal battle for the soul of the Democratic Party is going to feature Sen. Warren in a prominent position. She was the leading congressional proponent of the Department of Labor’s fiduciary standard for investment advisors, for example, a measure that was strongly opposed by the life insurance industry. Pressures to conflate the fiduciary rule to other areas of the insurance industry will likely now abate—and the life insurance/financial advice industry might have opportunities to scale back the DOL’s rules.
 
A parochial priority for The Council has been the imposition of the Foreign Accounts Tax Compliance Act to international commercial p/c placements. We feel strongly that non-cash-value p/c policies are not a means through which Americans can evade income taxation, but the IRS has imposed the burdens on our industry sector nonetheless. Removing these onerous requirements will remain a major priority in 2017.
 
Likewise, we have been frustrated that the board of directors for the National Association of Registered Agents and Brokers (NARAB) has not yet been approved by the Senate, even though President Obama has advanced a slate that is uniformly supported by our industry and state regulators.
 
One potential worry for us is the Federal Insurance Office, which was created as a part of the Dodd-Frank Act. The current Director of the FIO, Mike McRaith, has been an exemplary public servant and we hope that he continues in this role in the future, and we will fight against any legislative efforts to undermine his authority. We believe it is important for the U.S. to speak with one voice in international negotiations. While we also are supportive of our state-based regulatory system, we always work to streamline laws and eliminate protectionist barriers to trade. Ever since the long-past debates about the proposed “optional federal charter,” there has been a schism within the insurance industry between those who are purists on either side the state-federal argument. We expect those intra-industry tiffs will continue, though we have high hopes that there will be few major legislative attempts that would undermine an industry that continues to work well.
 
Cyber insurance will be another significant issue, with Sen. Thune as a major player on these issues as chairman of the Senate Commerce Committee. We support a single standard for breach notification, and believe we have excellent opportunities to achieve these goals in 2017.
 
On this astonishing day in American history, we are reminded that for a narrow slice of the financial services community—commercial insurance brokerage—we are engaged in many of the great battles that are essential to the functioning of the American economy. And as Brittany Lindberg says, if you’re not at the table, you’re on the menu.
 
We will continue to keep you apprised of issues impacting our industry and are grateful for everything you’ve done for us. 

Please contact Joel Wood at joel.wood@ciab.com or Joel Kopperud at joel.kopperud@ciab.com with any questions.

Copyright © 2016 The Council of Insurance Agents & Brokers, All rights reserved.



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