Election could bring change to property/casualty insurance sector

The property/casualty and risk management sector will likely see changes following last week’s elections as new economic, fiscal and legislative policies are introduced at the federal and state levels.

While tort reform advocates will continue to target state legislatures, experts say the election of Donald Trump as president and Republican control of at least the U.S. Senate and possibly the U.S. House of Representatives might open the possibility of changes at the federal level.

Mr. Trump’s fiscal policy will alleviate concerns about tax increases and likely lead to a stable environment for mergers and acquisitions, they say.

However, the prospective economic policy of the incoming Trump administration, particularly the introduction of additional tariffs, could increase insurers’ repair and rebuilding costs.

Tort reform

The American Property Casualty Insurance Association will continue to push for federal legislation requiring the disclosure of third-party litigation funding following the election, David A. Sampson, president and CEO of the Des Plaines, Illinois-based organization, said in a statement.

For several years, insurers and corporations have raised concerns about third-party litigation funding, arguing that it drives up litigation costs and that the commercial interests behind the funding are often not required to disclose their involvement in lawsuits.

APCIA supports the proposed Litigation Transparency Act of 2024, which would require disclosure of third-party litigation funding in federal civil litigation; and the proposed The Protecting Our Courts from Foreign Manipulation Act, which would require disclosure of funding by foreigners and would prohibit funding by foreign states and sovereign wealth funds, Mr. Sampson said.

“Next year, APCIA will continue to build on the momentum from this Congress, educate new lawmakers on this priority issue, and work with the leaders in both parties to introduce and ultimately pass legislation,” he said.

APCIA will also continue its tort reform efforts at the state level, said Adam Shores, senior vice president, state government relations, in an interview.

For example, the organization will look to build on reforms achieved in Georgia, Louisiana and Texas in recent years “to further address legal system abuse,” he said.

Federal tort reform may not be a priority in Mr. Trump’s populist agenda, said Robert P. Hartwig, a professor of finance and director of the Center for Risk and Uncertainty Management at the Darla Moore School of Business at the University of South Carolina.

“The challenge for insurers in terms of tort reforms remains, with most reforms needing to occur at the state level,” he said.

Mr. Trump’s judicial appointments could eventually affect liability insurers, including the directors and officers liability sector, experts said.

“The most likely way the new administration could impact the D&O environment is through the president’s judicial appointment powers,” said Kevin M. LaCroix, Beachwood, Ohio-based executive vice president of RT ProExec, a division of Ryan Specialty LLC.

Mr. LaCroix said the Biden administration’s judges were perceived as more liberal and more sympathetic to plaintiffs, whereas judges appointed by Trump will likely be perceived as more conservative and business-friendly.

“If, over time, there is evidence that the shift in the judiciary is favorable to defendant companies, it could affect pricing. Even then, supply and demand will be more important factors, as has always been the case,” he said.

Tariffs and taxes

Increased tariffs on imports, which featured prominently among Mr. Trump’s campaign promises, could drive up costs for insurers paying for auto parts and construction materials, Mr. Hartwig said.

“From an auto and property insurance standpoint, the impact is unambiguously negative, at least from a claim severity perspective,” he said.

Higher prices for replacement parts and building materials could eventually lead to higher premiums for policyholders, Mr. Hartwig said.

The environment for mergers and acquisitions within the insurance sector, though, will likely be stable, experts say.

On the one hand, buyers will be more confident and hungrier to do deals because they won’t face a possible corporate income tax increase, leading to pro-growth policies, said Kevin Stipe, CEO of Reagan Consulting in Atlanta.

On the other hand, potential sellers among insurance agents and brokers are unlikely to see a capital gains increase, which would have had some of them “rushing to the exits,” he said.

There will likely be fewer challenges associated with M&As under Mr. Trump, said Mr. Hartwig.

One major deal announced in 2020 – Aon PLC’s proposed acquisition of Willis Towers Watson PLC – was shelved during the Biden administration after the U.S. Department of Justice raised antitrust concerns.

“I would certainly expect that you will see on net more deals done, but with the caveat that if they involve a foreign partner, there could be some additional challenges, given the general concern about, say, foreign companies acquiring U.S. companies,” Mr. Hartwig said.

Other changes affecting commercial insurers and employers introduced during the Biden years will likely remain.

For example, while Mr. Trump will likely change the chair of the Equal Employment Opportunity Commission, the EEOC’s Democratic majority will remain in place until 2026, so measures such as the Pregnant Workers Fairness Act, which went into effect last year, will stay in place, said Christopher DeGroff, a Chicago-based employment attorney at Seyfarth Shaw LLP.

Moreover, Republican appointee Andrea Lucas, the presumptive pick for the new acting chair of the commission, has expressed strong support for the PWFA, he said.

“I would expect the EEOC to continue its robust pursuit of pregnancy-related investigations and litigation in the foreseeable future, even with the change in administration,” Mr. DeGroff said.