Trump presidency to usher in new era for risk managersReprints
The unconventional presidential election campaign of Donald Trump yielded numerous policy pledges that could have direct and indirect effects on people and organizations in the business of managing risk.
Everything from financial regulation to international sanctions to health care reform was lambasted by the iconoclastic candidate.
Now that the president-elect and his party are transitioning from electioneering to governing, they — like many political victors before them — are in some cases moderating the tone of their comments, but in other cases sticking to their campaign rhetoric.
The cabinet and political appointments and nominations announced by the incoming administration also send mixed signals. In many cases, traditional conservatives are being put forward, but other appointees have less traditional backgrounds.
How the policy changes and appointments will affect risk management will be played out over the coming months and years, but in the following pages, as we await the inauguration of the 45th president of the United States later this month, we take a look at some of the key issues that concern risk managers and their insurance industry partners, and talk with industry experts about how they think the political and policy goals of the incoming Trump administration and the Republican-controlled Congress will change the business landscape.
CORPORATE RULES MAY EASE
Despite President-elect Donald Trump’s campaign promises to dismantle the Dodd-Frank Wall Street Reform and Consumer Protection Act, there are unlikely to be big differences in the U.S. Securities and Exchange Commission’s activities under his administration, experts say.
“I wouldn’t expect there will be major changes in the way the SEC goes about its enforcement program,” said Michael L. Hermsen, a partner with Mayer Brown L.L.P. in Chicago. “Oftentimes, the commissioners in the past have been unanimous or near-unanimous” with respect to SEC actions, despite party affiliation, he said.
The record $4 billion-plus in disgorgement and penalties the agency collected in fiscal year 2016, which was announced in October, may hold level or decrease slightly, said William G. Passannante, a shareholder with Anderson Kill P.C. in New York.
“There might be a slight course correction,” but the laws addressing securities fraud have been in place since the Depression, and “I don’t think you’re going to see too much of a significant change” in how the new SEC chair will approach enforcement, said Jimmy Fokas, a partner with Baker & Hostetler L.L.P. in New York.
In addition, there is unlikely to be significant change with respect to enforcement of the Foreign Corrupt Practices Act. “The consensus is, (President-elect Trump) will continue to enforce it,” said Kevin LaCroix, executive vice president of RT ProExec, a division of R-T Specialty L.L.C. in Beachwood, Ohio.
However, there will be a focus on “more clear-cut violations” of the FCPA, said Mr. Hermsen. “You will see less sort of stretching to make new interpretations” of the law or efforts to expand how it is applied, he said. “Those are the types of situations where we may see a little bit of pullback.”
There may also be a pullback on the pay ratio rule adopted in 2015 pursuant to Dodd-Frank, which requires public companies to disclose the ratio of a CEO’s compensation to its employees’ median compensation, Mr. Hermsen said.
Mr. Passannante added that former SEC commissioner Paul Atkins, who is on President-elect Trump’s transition team, has advocated requiring whistleblowers to first report to their own companies before approaching the SEC, which is not the case now.
Mr. Atkins has also advocated that the SEC focus its enforcement actions on individual bad actors rather than the company itself, Mr. Passannante said.
But experts say much remains unknown.
“The tea leaves are too hard to read right now,” said Michael E. Clark, special counsel with Duane Morris L.L.P. in Houston. Mr. Trump “is not a traditional Republican in any sense of the term.”
POLICY ON BIAS LAWSUITS TO VEER IN NEW DIRECTION
Employers should expect incremental changes in how the U.S. Equal Employment Opportunity Commission operates once President-elect Donald Trump assumes office, but how much will change is unclear.
There will likely be policy-driven changes as Mr. Trump replaces commissioners whose terms have expired, said Gerald L. Maatman Jr., a partner with law firm Seyfarth Shaw L.L.P. in Chicago. But the career public servant attorneys who have been in place under the Bush, Clinton and Obama administrations and feel strongly about what they do “will not lose their jobs,” he said.
Still, “There could be a real slowdown or rollback” in the EEOC’s strategic enforcement plan, said Richard B. Cohen, an attorney with FisherBroyles L.L.P. in New York.
The agency announced in October that its plan for fiscal years 2017-21, which continues to prioritize areas identified in its previous plan with some modifications, includes eliminating barriers in recruitment and hiring and protecting vulnerable workers, among other goals.
One possible move by a Trump administration would be changes to the EEO-1 report. Until now the annual survey has required company employment data to be categorized by race and ethnicity, gender and job category.
But a revised report to be first filed in March 2018 requires private employers with at least 100 workers to also report summary pay data.
EEOC Chair Jenny R. Yang has said collecting pay data is a significant step in addressing discriminatory pay practices, but many employers consider it onerous.
With the Trump administration and a Republican-held Congress holding the agency’s purse strings, the EEOC may also focus more on systemic discrimination cases, rather than filing cases on behalf of only one or two plaintiffs, in order to use its resources more efficiently. But the EEOC may also reduce the number of systemic cases it files as well, say experts.
In addition, with David Lopez having left his post as EEOC general counsel last month, a new Trump-appointed general counsel may put a stop to the agency’s regional offices’ “more aggressive attempts to push the law in various directions,” said Frank C. Morris Jr., a member of Epstein Becker & Green P.C. in Washington.
The EEOC also may change its approach with respect to its stance that Title VII of the Civil Rights Act of 1964 applies to sexual orientation, said Paul C. Evans, a partner with Morgan, Lewis & Bockius L.L.P. in Philadelphia.
The Trump administration may also more actively investigate and pursue claims related to the outsourcing of jobs to foreign nationals and companies, he said.
CRACKDOWN ON OPIOID ABUSE EXPECTED TO INTENSIFY
Experts believe President-elect Donald Trump is likely to back federal funding for state efforts to fight a growing epidemic of opioid addiction and overdoses.
“I think we will see significant statewide efforts supported by the president,” said Greg McKenna, Itasca, Illinois-based vice president and counsel of governmental affairs at Gallagher Bassett Services Inc.
The number of deaths from opioid overdoses surged 23% from 2014 to 2015, according to figures released by the U.S. Centers for Disease Control and Prevention in December. The CDC says at least half of those deaths involved a legal prescription drug, and most of the hardest hit states were in the Rust Belt and Appalachia.
The 21st Century Cures Act, signed by President Barack Obama last month, earmarks upwards of $1 billion for state programs that are fighting opioid addiction.
Examples of state programs include prescription drug monitoring programs that track opioidprescribing doctors and opioid addiction treatment programs.
Experts say the Trump administration could allow that federal funding to stand.
Mr. Trump is also expected to march ahead with campaign promises related to drug enforcement. That includes demanding that the U.S. Drug Enforcement Administration reduce the amount of prescription opioids that can be manufactured in the country and cracking down on doctors who frequently prescribe opioids, including physicians who prescribe opioids for injured workers under workers compensation claims.
Medical marijuana, which is also making its way into workers comp, could face a tough road under the new administration.
Jeff Sessions, President-elect Trump’s pick for U.S. attorney general, isn’t a fan of medical marijuana and could initiate a battle between the federal government, which classifies marijuana as an illegal substance, and the 28 individual states that now allow medical marijuana to be used, sources say.
“The marijuana industry is really scared of Jeff Sessions,” said Mark Pew, senior vice president of Prium, a Duluth Georgia-based medical cost management firm.
“There is a significant concern that Sessions will follow through on his personal opinions.”
HEALTH CARE CHANGES EYED BY COMP SECTOR
One of the questions surrounding the new administration is what will happen to the health care reform law, which workers compensation experts have watched closely to determine if it would impact medical care for injured workers.
During his campaign, President-elect Donald Trump repeatedly stated that he would repeal the Affordable Care Act, which could leave an estimated 18 million people uninsured, according to the Center for Health and Economy, a nonpartisan research organization.
Mr. Trump seemingly has backed away from this position since the November election, however. According to media reports, he now plans to keep parts of the reform law, such as a provision that prevents insurers from denying coverage for pre-existing conditions and another that requires group health care plans to extend coverage to employees' adult children up to age 26.
Because of this shift, it may be too early to tell how workers comp could be affected if the ACA is repealed, said Steve Bennett, Washington-based associate general counsel for the American Insurance Association.
Experts say the ACA has not had much impact on workers comp medical care, despite initial concerns that it might affect the comp sector. For instance, some feared that doctors would bill more claims under workers comp if they were set receive less money for the same medical services under the ACA.
“That actually didn’t happen,” said Tracey Burdick, Los Angeles-based senior vice president of risk control services at Lockton Cos. L.L.C.
“Overall, we did not find any impact on injured worker access to medical care from its introduction, so its repeal would likely not have an impact,” said Barry Lipton, Los Angeles-based practice leader and senior actuary for the National Council on Compensation Insurance Inc.
Experts say comp claim frequency could increase if the ACA is repealed since people who lose coverage might seek care under workers comp.
SAFETY MAY SEE CHANGE IN FOCUS
The U.S. Occupational Safety and Health Administration has pursued an aggressive enforcement agenda against employers violating workplace safety laws under President Barack Obama, but that is likely to shift toward a more collaborative approach under Presidentelect Donald Trump.
“With respect to OSHA, I think we’ll see a movement going back to the balanced approach that was there when I was there,” said Edwin Foulke, an Atlanta-based partner at Fisher & Phillips L.L.P. and a former assistant secretary of labor for Occupational Safety and Health. “I really believe if you want to get to zero injuries and fatalities, compliance assistance is much more effective than enforcement.”
Late last month, Mr. Trump had not chosen a new head of OSHA, but his selection of Andrew Puzder, chief executive of Carpinteria, California-based fast-food chain CKE Restaurants Inc., as secretary of labor was praised by employer associations concerned about increases in regulation and denounced by employee representatives who fear a curtailment of the worker protections implemented over the past eight years.
Mr. Foulke, who served under three different administrations, said he doesn’t see any conflicts of interest arising from the fact that Mr. Trump is a real estate developer and the construction industry is often a subject of regulation by the agency, because the president-elect will focus on setting the broad agenda rather than the specific details.
“I don’t see him saying, ‘Hey, that silica standard needs to be changed,’” he said. “He has more important things to do.”
FLOOD COVER OVERHAUL
Unlike previous years when the fate of the National Flood Insurance Program often was determined in a last-minute legislative scramble ahead of its pending expiration, the incoming U.S. Congress is expected to move quickly to reform and reauthorize the program, which is in debt to the tune of $23 billion.
Overhauling the NFIP ahead of its September 2017 expiration is a priority for both Republicans and Democrats, including incoming Senate Minority Leader Chuck Schumer, D-N.Y., and the reform effort is expected to propel additional private-market participation in providing flood insurance, which will give homeowners and businesses more insurance options.
Industry stakeholders welcomed the December release of a set of draft principles by the House Financial Services Housing and Insurance Subcommittee that will serve as a starting point for the overhaul debate, which they believe bodes well for NFIP reform as a priority for the new Congress.
Brooke Stringer, Washingtonbased government relations policy adviser for the National Association of Insurance Commissioners, said the organization “supports the growth of a state-regulated private flood insurance market to provide consumers an alternative to the NFIP.”
The NAIC also supports the Flood Insurance Market Parity and Modernization Act, which was adopted by a 419-0 House vote in April, but did not see Senate action before adjournment.
“This is something we anticipate will be included in NFIP reauthorization,” she said of the bill, which clarifies that people who buy private flood insurance should receive the same treatment as those who purchase it through the NFIP if they’re trying to obtain federally backed mortgages that require flood insurance.
SUPPLY CHAIN RISKS RISE
President-elect Donald Trump’s threats to scrub trade agreements and impose high tariffs against China and Mexico could disrupt industry supply chains, analysts say.
Paradoxically, U.S. domestic firms would face the most significant disruption if Mr. Trump delivers on his pledge to scrutinize U.S. trade deals, and enacts punitive tariffs, said Arun Pillai-Essex, Americas analyst at Bath, England-based global risk advisory firm Verisk Maplecroft.
“U.S. manufacturing is heavily reliant on access to inputs from major U.S. trading partners like China,” Mr. Pillai-Essex said in an email. “Any disruption or tit-for-tat small-scale trade dispute would hamper access to critical imports and raise business costs.”
Mr. Pillai-Essex noted that making it more difficult to access global inputs would embolden Asian and other international competitors of U.S. manufacturing, who would be free to access the supply chains of China or Mexico.
“For Trump to successfully apply major tariffs on trading partners, his administration would be forced to lodge cases with the (World Trade Organization),” Mr. Pillai-Essex added, “unless he takes the highly unlikely step of removing the U.S. out of the trade body’s jurisdiction.” Mr. Pillai-Essex said the WTO’s role as an arbitrating body on trade issues should help reduce the Trump administration’s capacity to upend global supply chains. However, he said, in the extreme event of a U.S. withdrawal from the WTO, the adoption of mercantilism would introduce volatility into the global supply chain and act as a significant drag on business investment.
Bob Ferrari, Boston-based independent supply chain and B2B industry analyst and the founder and executive editor of the Supply Chain Matters blog, said in an email, “A Trump administration can well present added challenges for industry supply chains.”
“An overly protectionist policy by the United States could make U.S.-produced goods more expensive in foreign markets due to added tariffs,” Mr. Ferrari said in an email, “and that would have a potential reverse impact on manufacturing and supply chain related employment in the U.S.”
On the positive side, Mr. Ferrari continued, “maybe, maybe, we may see some Apple iPhones actually produced in the U.S., but more than likely via highly automated manufacturing.” “From a business insurance lens,” he said, “the impacts could well translate to added supply chain risks and needs for even more dual-sourcing of components parts and finished goods manufacturing.”
Arash Azadegan, associate professor of supply chain management at Rutgers Business School in Newark, New Jersey, said “the underlying theme to a Trump presidency is on reversing the effects of open markets at the global scale through more protectionism.”
“Protectionism comes at the price of reduced efficiency across the supply chain,” Mr. Azadegan said in an email to Business Insurance.
INSURANCE FOR IRAN TRADE UNDER QUESTION, AGAIN
Insurers may have to contend once again with sanctions against Iran if President-elect Donald Trump goes through with his campaign promise to dismantle the Iran nuclear agreement, analysts say.
During the presidential campaign, Mr. Trump said his “No. 1 priority” would be scrapping what he called “the disastrous deal with Iran.” He later said he would not rip up the deal but vowed to vigorously monitor the agreement.
The agreement was negotiated under President Barack Obama and would have Iran redesign, convert and reduce its nuclear facilities and accept the 1993 Additional Protocol program in order to lift all nuclear-related economic sanctions.
This would free up tens of billions of dollars in oil revenue and frozen assets.
“If Donald Trump really cancels Iran’s nuclear deal, then Iran’s oil production will come under international restrictions once again and this will reduce its oil exports,” Gaurav Agnihotri, a Mumbai, India-based mechanical engineer and writer who focuses on the oil and gas sector, said in an email. “However, this will be easier said than done as Trump will have to convince the United Nations and other world powers for the same.”
Richard Nephew, director of the economic statecraft, sanctions and energy markets program for the Center on Global Energy Policy at the Columbia University School of International and Public Affairs in New York, said in an email that if Mr. Trump “backs away from the nuclear deal with Iran (or takes steps that eventually lead it to fall apart, which is more likely), then, yes, insurers would likely again face the threat of sanctions from the United States.”
“The United States found sanctions threats on key services — banking, insurance, transportation — as effective, if not more so, than threats on specific trade goods,” Mr. Nephew said. “This could be reactivated if Trump fails to reauthorize sanctions waivers required under the deal (and the latest he’ll have to do this is May or July 2017) or if he decides that renewed sanctions are the right path.”