Leader's Edge logo Under the Dome by Joel Wood Tell the Editor
Under the Dome by Joel Wood Yes We Can

Yes, we can predict the feds are coming, but what happens, no one really knows. The only certainty is that gridlock is over.

By  Joel Wood

On the day after the election, a Council colleague stuck her head in my office and sheepishly asked if I would mind giving her my newspapers. Sure, I said, pointing to a jumbled stack on my desk—but what’s the deal? Is there some sort of a recycling drive? It took me only a second or two to realize that I had become so jaded and cynical and nonchalant about politics that I had failed to realize how truly historic the election of Barack Obama is. While I was sitting in an office on Pennsylvania Avenue equidistant from the Capitol and the White House, noodling around on the parochial insurance impact of various House races, I was missing the transcendence of the moment.

I’m guilty, meanwhile, of over-analyzing the impact of the elections on Council member firms, when the election results raise as many questions as answers on the issues we follow. This is not because we don’t know where the president-elect and congressional leaders stand—we know their aspirations and policy goals. But the environment is highly combustible based on marketplace uncertainty, fiscal constraints and competing interests. Anyone who says they know how these debates will play out in the coming months is blowing hot air. The only certainty is that Congress and the administration will not kick the can down the road as they have amid the partisan gridlock of recent years. Action is certain. But whether these are net pluses or minuses for our sector of the financial services world is unclear.

Here, at least, are the big questions that will frame these coming months:

  • There will be federal oversight of the insurance industry. The federal intervention in AIG alone assures this will be the case. But will this be limited to an overlay of “systemic risk” regulation for large holding companies? To what extent will it preempt state insurance regulation? Will it afford companies the option to choose a federal or state regulatory regime? If so, will the option be limited to life insurers? To all property-casualty carriers and intermediaries? To only large commercial insurance transactions?
  • The regulatory overhaul will be dramatic. But we don’t know whether the legislation itself will be sleek (leaving details to the Obama Treasury Department) or loaded up with provisions. A comprehensive bill will give us an opportunity to finally enact our top priority of surplus lines reform and perhaps a federal producer licensure clearinghouse. But congressional liberals might attempt to add punitive measures to a big bill, such as “community reinvestment” provisions, limits on credit scoring, perhaps even suitability requirements for benefits products.
  • Health insurance reform is also front-and-center, with Obama proposing aggressive government and private options to expand coverage. After the election, the two key committee chairmen in the Senate—Sen. Ted Kennedy, D-Mass., of the Health, Education Labor and Pensions Committee, and Sen. Max Baucus, D-Mont., of the Finance Committee—pledged to work with the administration to create a consensus package of major reforms. Obama has often repeated his support for employer-provided group health insurance, but the devil is in the details of whatever plans emerge. The plan may impose a “play or pay” system on employers, wherein businesses would either have to provide coverage or pay a considerable percent of their payroll to offset the costs of enrolling workers in government-organized insurance. Our worry is that the public-insurance option, especially if combined with expensive mandates for private coverage, will tilt toward a government takeover—despite intentions to build upon, not supplant, the current system.
  • Organized labor and the trial bar invested heavily in Democrats this year, and their efforts paid off. There will be great pressure to retrench on international trade agreements, but I hope these will have little spillover in the financial services arena. Federal tort reform measures are dead, and trial lawyers will push aggressively to roll back the Class Action Fairness Act. But will these issues be incidental, or central, to the new Democratic agenda? Time will tell.

There will be many temptations for the Democratic Congress to overreach. Not since Lyndon Johnson’s 1964 election have Democrats been so united with majorities to match. Jimmy Carter ran as an outsider and anti-Washington. Bill Clinton’s “triangulation” of congressional Democrats was successful, but it left scars. Obama alienated no one in the Democratic caucuses of the House and Senate, and their leaders feel indebted to him. For the foreseeable future, he will have a lot of running room. Unlike, say, John Edwards, Obama took no cheap shots at the insurance industry during his campaign. Though his career in the Senate was brief, the insurance community in Illinois found him to be responsive and rewarded him with much of their political support.

There are parochial and technical aspects to the federal agenda of the nation’s most successful commercial insurance agencies and brokerages. But with the international financial crisis, the unprecedented federal interventions in the private marketplace, and the fiscal stress on America, our issues are intertwined with the great debates of our time. History is being made, and it’s a fascinating—and challenging and scary and exhilarating—time to be in Washington.

Wood is The Council’s senior vp of Government Affairs.

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