By Steven A. Morelli, Senior Editor

SOURCE: InsuranceNewsNet, Inc.

November 5, 2008

Without a doubt, the election signaled a shift, but what does that mean for the insurance industry?

The political landscape has changed profoundly, not just because we will have a Democratic president given the biggest mandate since Lyndon B. Johnson’s second term. Barack Obama will also have a compliant Congress with a convincing Democratic majority.

Although looking at the crystal ball is usually about as reliable as turning over the Magic 8 Ball for answers, we know the issues and some of the likely scenarios:

ESTATE TAX: Obviously a key issue for life insurance. It was already clear the tax was not going to be annulled under either administration. Obama has already said he would leave the tax at the 2009 level, meaning an exemption for the first $3.5 million, $7 million for couples and a top rate of 45 percent. Congress seems to be in consensus on this.

“THE THIN THREE THREADS:” This is the phrase the Association for Advanced Life Underwriting (AALU) derived to describe the circumstances that give life insurance its unique value. They are inside cash build-up, tax-free death benefits and the ability to remove life insurance from a taxable estate. Legislators and even the Bush administration have cast an avaricious eye in the direction of these potential funding sources, however briefly. Many, including the AALU, are concerned a federal government facing intense fiscal pressure will smack its lips over these temptations. The life insurance industry has said it needs a place at the federal table to defend these “threads.”

FEDERAL REGULATION: The planets are aligning here. Life insurance companies want a dependable national system after many years of fighting efforts to move away from a state system. Federal regulators have been howling outside the door at greater volume. Even the state commissioners are accepting at least a half-step with the Office for Insurance Information bill, which the National Association of Insurance Commissioners (NAIC) endorsed. That bill contains the structure that could absorb the NAIC into a national, if not a federal, system. In fact, the bill’s sponsor, Rep. Paul Kanjorski, D-Pa., won a hard-fought re-election. But with the meltdown of confidence in financial corporations, the pendulum might be swinging with rockets strapped on and could go all the way to the Optional Federal Charter (OFC) or maybe even beyond optional. The OFC has been not on the back burner, but off the stove entirely for some time. The momentum might even overcome some reluctance within the Democratic party, chiefly in the person of House Majority Leader Nancy Pelosi, D-Calif.

MEDICARE ADVANTAGE: Things don’t look promising here. Obama has not only criticized this program but has gone so far as to say it was “defrauding” senior citizens. This is on top of growing Democratic disdain in the Congress.

HEALTH INSURANCE: Take all the arguments over the plans proposed by Obama and Sen. John McCain and toss them in the shredder. They all pre-supposed the need for bipartisan approval. Obama’s plan was to create a national insurance program administered by a National Health Insurance Exchange that individuals and small businesses could buy coverage from. It was supposed to be similar to the system available to federal employees. It would also act as a “watchdog.”

Employers who did not provide “meaningful” coverage would have to pay a fee to support the national program. Small businesses would be exempt from the requirement. But what constituted a small business? What is “meaningful” coverage? How would this national system work? How would it act as a “watchdog?” These were some of the questions we had before the election. We’re stuffing them into the shredder. It’s a new game now.

These are just some of the key issues concerning the insurance industry, but of course everything else affects the industry as we have seen with the sector shaken by the financial crisis. Amid the concerns about tax policy shifts and regulatory reform there is some solace to be found in a seemingly contrarian observation made by many, including the AALU president, Mike Corry: Businesses, especially life insurance, tend to do better under Democratic administrations. Before the election, Corry said that has been the case for about a half century, but he was not so sure if that still holds true with a Democrat relatively unchecked by heavily Democratic Congress. It looks like we’ll find out.

Steve welcomes comment at smorelli@insurancenewsnet.com.

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