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CHICAGO — The Trump administration’s pro-business policies could create big growth opportunities for commercial property/casualty insurers and their policyholders, but they also carry some risks, a leading insurance economist said Wednesday.
Proposed massive infrastructure spending, increased economic growth and some regulatory rollbacks will likely create significant new opportunities for businesses in the U.S., which in turn will generate premium growth for insurers across most lines of property/casualty and workers compensation, said Robert Hartwig, clinical associate professor of finance and co-director of the Center for Risk and Uncertainty Management at the University of South Carolina’s Darla Moore School of Business in Columbia.
But regulatory changes could also create increased exposures for insurers, said Mr. Hartwig, who is a former president and economist for the Insurance Information Institute. He was speaking at insurance brokerage Hays Cos. annual symposium in Chicago on Wednesday.
Historically, the party affiliation of the president makes little difference to the profitability of the property/insurance sector, but the election of President Donald Trump “is pretty much good news for the property/casualty insurance industry,” Mr. Hartwig said.
In general, he said, Mr. Trump favors lower taxes, which will benefit businesses; while he’s a protectionist, he’s not really an isolationist and is likely to take a practical pro-business approach to trade despite his rhetoric about building a wall along the Mexican border; and his federal judicial appointees will likely be pro-business, which would favor tort reform.
More specifically related to insurers, Mr. Trump will likely try to scale back some the increased regulation included in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Mr. Hartwig said, noting that Mr. Trump has previously referred to the law as “a disaster.”
While it’s unclear exactly what the administration will do, the systemically important financial institution designations included in the law, which require more regulatory oversight of institutions such as American International Group Inc., will likely be dropped, he said.
And while Federal Reserve Chairman Janet Yellen does not support a rollback of Dodd-Frank, “Trump has the opportunity to replace her as the chair of the Fed next year and numerous other members of the Fed over the next year or so,” Mr. Hartwig said.
In addition, the Federal Insurance Office will likely “lose the one or two teeth it has, if it doesn’t disappear altogether and be rolled into some organization within the Treasury,” he said.
Mr. Trump’s proposed big increase in infrastructure spending “is an absolutely fantastic situation for property/casualty insurers,” Mr. Hartwig said.
“This is big dollars, not only in the construction phase, generating everything from workers comp to commercial auto to all kinds of construction-related risk … (but also) great opportunities for brokers and a lot of work for risk managers as a lot of this investment ramps up.”
General economic policy will also favor property/casualty insurers, he said. While Mr. Trump’s projections of sustained high levels of gross domestic product growth may not be feasible, “my back-of-the-envelope analysis is that if we were to wind up with a full point of additional GDP growth, that translates into somewhere around $6 billion of additional property/casualty insurance premiums — and that’s unambiguous good news,” Mr. Hartwig said.
But Mr. Trump’s policies do pose risks for property/casualty insurers.
For example, “there’s no question that the insurance industry benefited from tighter environmental regulation in the sense that it makes environmental losses less likely or less severe or probably both,” he said.
Also, the likely rollback of parts of Dodd-Frank poses risks for directors and officers liability insurers, Mr. Hartwig said.
“There was a reason why we had Dodd-Frank, which people quickly forget,” he said. While some of the aspects of the law may have overreached, other parts of the law potentially could make future financial crises less likely or less severe.
And the unpredictability of Mr. Trump’s social media comments could hurt insurers, he said.
“At some point, somewhere, somehow, some insurer is going to get on the wrong end of a Trump tweet,” Mr. Hartwig said.
For example, if he perceives that insurers respond poorly to a natural disaster or terrorist attack — or even balk at paying a claim on a Trump property — the insurance sector could come under fire, he said.
An executive order issued by President Donald Trump on Monday could significantly limit or even halt the introduction of new regulations over the next several years by the U.S. Occupational Health and Safety Administration and may put several recently passed regulations in jeopardy.