Mixed Bag: What Trump 2.0 Tariffs, DOGE Activities Mean For Insurers
Setting aside the populist flavor of his campaign rhetoric, Donald J. Trump’s previous service as the nation’s 45th president presents a remarkable opportunity to make educated guesses about the impact of his expected policies on the property/casualty insurance industry as the 47th President.
Towards this aim, we asked a diverse group of industry observers to provide their thoughts on a plethora of probable policies directly or indirectly affecting insurance carriers, as Trump, a Republican Congress, a conservative Supreme Court, and an eclectic group of Cabinet picks take charge on January 20, 2025.
The experts weighed in on plans by the president-elect and his conservative acolytes to increase tariffs, deport illegal immigrants, lower corporate taxes, roll back environmental regulations, and decrease automobile insurance premiums. They offered opinions on the fiscal sustainability goals of the advisory Department of Government Efficiency (DOGE), specifically whether FEMA, NOAA, USGS and the NFIP—agencies whose remits affect the risks of property and flood insurers—will be downsized as planned. Other comments focused on corporate tax cuts and tort reform.
Predicting the future is a fool’s errand, unless that future involves Trump, whose victory nobody, Republicans included, imagined four years ago. “There are Republicans and Democrats, and then there’s Trump, who doesn’t fit into a particular mode,” said Scott Seaman, co-chair of the global insurance services practice group nationwide law firm Hinshaw & Culbertson. “He has reshaped the Republican party in his image and comes [into office] with majorities in the Senate and the House, which will likely facilitate the confirmation of his cabinet appointees and plans.”
Low Taxes, Higher Tariffs
One of these plans is an extension of Trump’s 2017 tax cuts, set to expire at the end of 2025. The continuation of lower corporate taxes is good news for insurance carriers, the interviewees concurred. “To the extent Trump is successful in continuing the tax reductions and in slowing economic inflation, insurers will be able to reduce operational costs and claims costs, respectively,” Seaman said.
Others agreed. “The extension of the Tax and Job Cuts legislation during Trump 1.0 benefits every business, including insurers,” said economist Robert Hartwig, a clinical associate professor of finance and insurance at the University of South Carolina, and head of the university’s Risk and Uncertainty Management Center.
Echoing these comments is Jerry Theodorou, director of the finance, insurance and trade program at R Street Institute, a U.S.-based center-right think tank. “If reintroduced as Trump plans with a lower corporate tax rate that is likely to pass because of the Republican majorities, it will go to the bottom lines of insurance companies and that’s good.”
Moving on to the president-elect’s intention to impose an additional 10% tariff on China and additional 25% tariffs on Mexico and Canada, the industry experts forecast problems ahead for insurers. “In the short run, tariffs hurt workers and push prices up; they’re inflationary,” said Michel Leonard, chief economist at the New York-based Insurance Information Institute. “If domestic producers lose their foreign buyers or partners after the tariffs go away, the long-term impact may be destructive.”
Automakers are a case in point. Higher tariffs will drive up the cost of car components and materials, resulting in more expensive repairs that are passed on to insurers and ultimately the policyholder.
“Automobile parts imported from Mexico account for 38% of such parts sold in this country, whereas automobile parts from China sold here have fluctuated between 10% and 25%,” said Theodorou. “Trump contends that U.S. companies will simply retool and make these parts domestically, offsetting the inflationary impact. It will take years for that to happen.”
If higher tariffs are imposed as expected, Theodorou said it will reverse positive trends in private passenger automobile insurance premiums.
DOGE Cutbacks
The President-elect’s handoff to DOGE’s co-chairs Elon Musk and Vivek Ramaswamy to slash government spending by $2 trillion is reportedly influenced by Project 2025, a conservative blueprint for government drawn up by the Heritage Foundation that Trump disavowed during his campaign. Among the agencies in the crosshairs are FEMA (Federal Emergency Management Agency) and NOAA (National Oceanic and Atmospheric Administration).
Hartwig said he is mystified by the objections to NOAA, other than an interest in slashing costs across the board. “NOAA’s analyses on hurricanes and other storms provide extremely valuable services to the public, state and local governments, property insurers and emergency response organizations of every sort, including the government itself,” he explained. “The notion that we as a nation will be better served by no longer funding catastrophic hurricane, tornado and hail forecasts is greatly mistaken.”
NOAA’s historical weather observation data and information on hazard frequency and severity relationships is critically important to the reinsurance industry, said Mark Bove, meteorologist and senior vice president of natural catastrophe solutions at Munich Re. Bove cited the information’s use in creating catastrophe risk models and parametric triggers for catastrophe bonds. “NOAA’s real time data, analyses and forecasts of natural hazards also help insurers plan for post-event response [to a disaster],” he added, commenting that the agency “provides one of the best returns on investment of American taxpayer dollars in the country.”
Regarding FEMA, which resides inside the Department of Homeland Security and is likely to be led by Gov. Kristi Noem, Hartwig said he is unsure what her approach will be. “It won’t be abolished. That’s a certainty. And [if] its budget is downsized considerably, and a major hurricane strikes in 2025 or 2026, the federal government’s poor response will be a black eye on the Trump Administration.”
Project 2025 also calls for privatizing FEMA’s National Flood Insurance Program (NFIP).
The Big Regulators
Like elsewhere across the federal government, DOGE is eying significant reductions in personnel and offices at the Federal Trade Commission (FTC) and the Securities and Exchange Commission (SEC). But the bigger story is anticipated pullbacks in the agencies’ regulatory and enforcement initiatives.
“If what the press is saying is true that the FTC under Trump will be more laissez-faire and not interfere as frequently in mergers and acquisitions and antitrust issues, then that creates D&O implications for board directors, putting them in the hot seat more often as shareholders challenge a proposed or completed merger or acquisition,” said Bailey. “The bigger the merger, the hotter the seat.”
Alternatively, a withdrawal in the SEC’s regulatory and enforcement objectives will benefit directors and officers. “They’re the main regulator we worry about from a D&O standpoint,” said Bailey. “Under Biden, enforcement actions [against directors and officers] were very aggressive. The SEC bent over backwards to chase what they called the ‘gatekeepers of a corporation.’ If Trump does what he is signaling he’ll do, we’ll see less aggressive actions and fewer enforcement proceedings, good news for D&O insurers.”
In agreement with this perspective is Seaman from Hinshaw & Culbertson. “The general expectation is that D&O exposures related to compliance and enforcement risks by government agency actions will decrease, which is healthy in terms of reducing D&O exposures,” he said.
Read the entire article, including information on the future of the Federal Insurance Office and the incoming administration’s attitude toward litigation abuse, go to Carrier Management.