Now that he has sealed the Republican nomination, it makes sense to ask what the implications of a second term for Donald Trump would be for the insurance industry.
Polls at this stage have historically been poor predictors of outcomes, but with Trump ahead not just in national polls but in most of the swing states, there is a clear path back to the White House for the 77-year-old. The industry must prepare itself for a second Trump term.
There are many likely scenarios in which Joe Biden secures re-election. A Biden win, though, just extends the status quo, while a Trump win would entirely disrupt it. Another scenario that should be gamed out is a narrow – and therefore contested – Biden win. (Ian Gutterman put together an interesting – if scary - piece looking at that possibility.)
If we get a second Trump presidency, the industry expects a more business-friendly administration in the round. However, it understands that the price for this will be the increased uncertainty that comes from Trump’s extreme unpredictability.
Financial firms have historically preferred Republican administrations, but under Trump the calculation is more finely balanced, primarily for that reason.
In reading the outlook, insurers and brokers are relying on the expectation that the signal behind the noise of a Trump presidency would be a lighter touch on regulation, a less obstructive federal government, and a more pro-business approach on fiscal and monetary matters.
But Trump II would not be a one direction move in favor of the US economy and the markets. Trump’s protectionist streak is stronger than Biden’s, and the imposition of big tariffs could increase inflation and hurt trade.
Other looked-for wins include more conservative federal judges that are perceived as a positive for loss costs, although state judges likely matter here more than federal judges and conservative judges are not as favorable as previously.
Importantly, while a Trump presidency would be noisy, his ability to effect change will be constrained.
There may be fewer grown-ups in the room this time, but the likeliest scenario would see the Democrats retain the Senate.
While Trump would likely want to roll out big new tax cuts, and may want to put a more pliable governor in at the Fed to aggressively cut rates and stoke the markets, divided government (or even a slim majority in the Senate) will restrict his room for maneuver.
Rather than rolling out a big new tax cut, he would likely spend much of his time and political capital fighting to retain what he got through last time, with provisions from the 2017 Tax Cuts and Jobs Act set to expire at the end of 2025, pushing taxes higher.
Given the size of the Federal deficit already, Trump’s reluctance to cut entitlement programs, and the likelihood of a polarized and partisan Congress, a messy horse-trading exercise beckons.
Although the cuts in Corporation tax were permanent, the need for a new settlement on tax could leave businesses worse off than now. Multi-national firms are concerned about the interaction of the US tax system with the new global minimum tax regime, and private brokers are concerned about changes to the pass-through tax rules.
Similarly, the governor of the Fed is a role that is subject to Senate approval, something which is likely to militate against an irresponsible and unqualified choice. The powerful orthodoxy within economics about the primacy of controlling inflation suggests that a new governor will operate within a similar overall framework to Jerome Powell.
In addition, even if Trump’s instincts are towards lighter regulation, the impact of that approach will be muted for the insurance industry by the reality that regulation in the sector is state-driven. There seems limited appetite at Federal level for greater involvement, and areas where politics could touch the sector more like potential new public private partnerships are fringe interests in Washington DC.
The ultimate political wildcard
The negative implications for the insurance sector of a second Trump presidency are much harder to estimate because Trump is the ultimate political wildcard.
Indeed, the unpredictability is part of the playbook – he wants to shock and destabilize. He wants the freedom to ad lib, and experiment and change course.
Given this modus operandi, it is extremely challenging to know what his big bets will be in a second term, how far he will go in ripping up prior norms of governing, and who he is going to designate an enemy.
It is also hard to predict how he will respond to the shocks that inevitably arise in any Presidency – and, in particular, the way he will act on the international stage. A further increase to already elevated geopolitical instability is a plausible outcome.
Even if Trump’s overall instincts are pro-business, he will be an unpredictable partner, and there is a tail risk for any sector (and even individual companies) that he will decide to intervene radically.
The obvious scenario that would draw interest would be a major catastrophe event. If the industry rejects a lot of claims due to coverage issues, or pays claims slowly, or significantly increases prices afterwards, or carries out a wholesale withdrawal of capacity, Trump may make a populist intervention.
Could that leave the industry with a federal backstop on cat? Or merely paying huge uncovered losses? Such scenarios are unlikely, but not impossible.
It is not clear how to price these kinds of downside scenarios versus the more limited upside from a more business-friendly administration.
Below, we drill down into four areas.
1. A more dovish turn on antitrust
2. Federal agency erosion
3. Elevated risk for companies pursuing ESG
4. More conservative judges on the bench
1. A Trump administration would likely take a more dovish stance on antitrust, with enforcement action more concentrated on sectors like tech and healthcare.
Sources said a second Trump presidency could facilitate M&A activity in some sectors after four years of what one called “radical” antitrust enforcement by Biden-appointed officials.
Propelled by antitrust hardliners Lina Khan, who has chaired the Federal Trade Commission (FTC) since 2021, and Jonathan Kanter – an assistant attorney general appointed to the Department of Justice (DOJ) that same year – the agencies’ respective antitrust divisions blocked a record number of deals in 2022.
Both agencies have embraced a two-pronged approach. First, more aggressive application of existing antitrust laws and principles. And second, the expansion of those laws and principles through new interpretations of old cases, a call for new laws and – in the case of the FTC – issuing robust noncompete rules.
In July 2021, opposition from the DOJ led Aon and Willis Towers Watson to terminate their $30bn mega merger 18 months after the deal was announced. The transaction would have created a $20bn-revenue broking and professional services giant with 95,000 employees.
Under a Trump administration, it’s likely that Republicans would replace both Khan and Kanter, though sources underscored that they would likely still come from a pro-enforcement camp of Republicans, and so would not usher in a deal-making free for all.
Additionally, one legal source said, the Trump administration has shown a willingness to go after companies on anti-trust grounds, aggressively applying existing legal precedent to do so.
In 2018, the Administration fought a protracted – though ultimately unsuccessful – battle to prevent AT&T’s $85bn purchase of Time Warner. In 2020, the Administration filed suit against Google for engaging in what it called “anti-competitive, manipulative and often illegal conduct”.
A second Trump presidency would likely embrace this approach once again, though a Trump administration is expected to show more restraint than the current one when it comes to expanding existing precedent for antitrust enforcement.
Sources canvassed by this publication ultimately expect antitrust enforcement under a second Trump presidency to depend heavily on the sector, with the insurance sector – which garners less mainstream attention than healthcare or Big Tech – likely to fly under the radar when it comes to dealmaking, or at the very least to be low on the list of enforcement priorities.
2. Trump II could erode the capabilities of federal agencies including FIO and NOAA, but the likelihood of major changes in other areas where the Federal government interacts with insurance are low.
A second Trump presidency would likely see a range of federal agencies and watchdogs de-staffed and discouraged from fulfilling their prior functions, ramping up an approach unevenly utilized in his first term.
The Federal Insurance Office (FIO) could fit the bill. Created in the aftermath of the financial crisis, the FIO lacks regulatory powers but performs a function in conducting research and cooperating with state regulators.
With current work including research on climate change, it is easy to see hostility from an in-coming Trump administration.
For similar reasons, it is easy to see the research – and perhaps also the monitoring work – of NOAA being scaled back if Trump wins.
Beltway sources were divided on prospects of changes in the way the NFIP operates that could disrupt or stimulate the development of the private flood market – suggesting there is no clear direction of travel.
The last few years have seen tepid interest in DC in additional public-private partnerships in areas like pandemic and cyber, as well as a recent bill to look at a federal nat-cat backstop.
In the base case, a Republican administration is perceived as less likely to advance such programs – but as noted there are chances in extreme situations that Trump could latch onto an idea like a cat backstop as he looks for bold initiatives.
3. Companies that take progressive stances on race, social issues and the environment risk becoming targets for Trump.
The height of the pandemic was characterized by an ESG Awakening in which citizen companies and political CEOs set out plans for action to advance racial justice, address climate change, and establish a broader stakeholder capitalism.
The pendulum has been moving against this kind of management activism for some time as the costs and trade-offs involved became clearer, and a conservative backlash gathers pace – with the hobbling of the Net-Zero Insurance Alliance a case study.
A Trump victory would create elevated risk for companies taking progressive stances, and accelerate the pendulum swing away from ESG-friendly firms.
It also isn't far beyond the realm of the possible that he would be willing to identify individual companies to go after, or to use his presidency to settle scores – think DeSantis vs Disney as a template.
For some time, CEOs have had to be adept managers of conflicting stakeholder groups, with staff, investors, and watchdogs often misaligned.
They will have to be still more adept if we get a second Trump presidency.
Back in 2021, I said that companies should head for the middle of the pack on ESG due to the risks that would face both trailblazers and laggards. That remains sound advice. (For background see: “The ESG Awakening: A critique”)
4. More conservative judges will likely be advantageous for insurers on loss costs, but increased polarization will likely sustain so-called social inflation.
The traditional lens on party politics would suggest that a Republican president would appoint more business-friendly judges, and therefore nudge the judiciary in a more favorable direction for insurers looking to defend claims.
And that is probably still how it will play out in the aggregate. But there is less certainty than in the past that the Republicans will put up slates of reliably pro-business judges.
Some in the insurance industry are concerned that the populist strain in the 2024 Republican party and the economic illiteracy of some of its judicial candidates could dispel the looked-for gains. In addition, when it comes to the cases that are hurting insurers, it is likely that the state courts are a bigger battleground than the federal courts where the president makes appointments.
Although the impact will be diffuse, it still makes sense to consider the way in which the overall political climate and tone could feed into casualty loss costs, which have been driven higher by so-called social inflation.
Social inflation is partially a function of a politics of resentment that takes aims at elites, including big business. The likeliest outcome of Trump II is the further entrenchment of this discourse of grievance, something which would support the structural increase in loss costs in casualty.
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