Coming off of one of the most contentious general elections in recent history, the life and health insurance industry was dealt a series of stinging defeats, most notably in the re-election of President Barack Obama, who goes into his second term with a substantial mandate and, critics fear, little reason to negotiate with Republicans. After all, the Obama administration oversaw the passage into law of both the Patient Protection and Affordable Care Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, both fiercely contested initiatives that would carry re-election fallout. Will a second Obama administration be even more eventful than the first? It is too early to tell, but as we go into 2013, however the dreaded fiscal cliff is dealt with will speak volumes about the political battlefield between the Democrats and the GOP. It will also set expectations for what may be accomplished — or inflicted — in the coming year. Let’s take a look at some of the most important issues on the political front-burner for the life and health insurance industry.
See also: Infographic: 2013 regulatory landscape
1. DOL fiduciary standard.
Emboldened by President Obama’s re-election, the Department of Labor will reintroduce its proposal to amend the definition of fiduciary under ERISA in coming months despite universal industry opposition. The original proposal was withdrawn in September. Phyllis Borzi, assistant DOL secretary and director of the DOL’s Employee Benefits Security Administration, said earlier this month that the “reproposal will be better, clearer, more targeted and more reasonably balanced” and that it will reflect the huge number of comments the agency received on the proposal. “We are facing a crisis of confidence and people need help,” she said.
Image: Jamie Kalamarides, Prudential Retirement's senior vice president of Institutional Investment Solutions, right, and Phyllis Borzi, Assistant Secretary of U.S. Department of Labor shake hands on Capitol Hill in Washington on Wednesday Mar. 7, 2012. (Jose Luis Magana/AP Images for Prudential)
2. SEC fiduciary standard.
A uniform standard for sale of investment products was mandated under the Dodd-Frank financial services reform law, but the issue has languished under current SEC chairman Mary Schapiro because of strong opposition, mainly from insurance agents, who oppose any change. They argue that they sell only a limited range of products and are captive agents, which could potentially create a conflict. Schapiro left this month, and even strong supporters of a uniform standard are not optimistic that a new chairman will invest much political capital on this project.
Image: In this Dec. 6, 2011 file photo, Securities and Exchange Commission (SEC) Chair Mary Schapiro testifies on Capitol Hill in Washington. Schapiro will step down as chair of the SEC next month after a tumultuous tenure in which she helped lead the U.S. government’s regulatory response to the 2008 financial crisis. (AP Photo/Evan Vucci, File)
3. Report on insurance modernization from the Federal Insurance Office.
It had been expected that the report, mandated by the DFA for completion last January, would be released next month. That now appears unlikely, with signs emerging that the administration will delay release of the report until after a new Treasury secretary is confirmed sometime early next year. Treasury secretary Timothy Geithner has indicated that he is staying on only to help forestall the fiscal cliff. One reason for the apparent delay is that the administration doesn’t want Republicans in Congress to use the report to embarrass the administration through the confirmation process if it contains proposals calling for greater federal regulation, a politically sensitive issue.
Image: Treasury Secretary Timothy Geithner testifies on Capitol Hill in Washington, Thursday, July 26, 2012, before the Senate Banking Committee hearing: "The Financial Stability Oversight Council Annual Report to Congress." (AP Photo/Haraz N. Ghanbari)
4. Consolidated regulation of insurers that operate savings & loans.
The DFA mandates that the Federal Reserve Board serve as the consolidated regulator of insurers which operate savings and loans as successors to the Office of Thrift Supervision. However, members of Congress have made clear through recent hearings that they won’t support strong oversight of these institutions, despite the fact that lax OTS oversight of AIG was universally blamed as the reason the federal government had to provide hundreds of billions in cash to AIG in order to save it from insolvency. Insolvency could have left all insurers holding the bag for paying claims from AIG policyholders even though state regulatory officials vehemently deny that is the case, and Congress decided not to hold state regulators accountable.
Image: Federal Reserve Chairman Ben Bernanke presides over a meeting of the Federal Reserve Board of Governors at the Federal Reserve in Washington, Thursday, June 7, 2012. Seated at table, from second left to right are Federal Reserve Board of Governors: Janet Yellen; Elizabeth Duke; Daniel Tarullo; Sarah Raskin; Jeremy Stein; Jerome Powell. (AP Photo/Charles Dharapak)
5. Systemically important non-banks.
American International Group is expected to be designated as systemically important by the Financial Stability Oversight Council. Other insurers, for example, Prudential Financial and MetLife, are also being scrutinized for such designation, but no decision is likely until next year. However, what metrics will be used to by the Federal Reserve Board to provide consolidated regulation of these institutions is not likely to become clear until the Fed issues additional rules during the first quarter of 2013.
Image: In this Sept. 17, 2008 file photo, the AIG logo is shown in New York. (AP Photo/Mark Lennihan, File)
Tax rates will certainly go up in 2013, and estate taxes are also likely to be raised beyond current levels. Moreover, Congress will be working next year to limit tax deductions in legislation expected to take effect in 2014. Despite the likelihood that interest rates will continue to be very low for the foreseeable future, that is good news for the insurance industry. The Bush tax cuts, which went into effect in 2002, hurt sales of insurance products. The life industry can expect to pay higher taxes, certainly on earnings, and perhaps with some curtailment in the tax benefits allowed on some products. However, all of that will be offset by increased desire in general for such industry products as annuities, corporate-owned life insurance, and life insurance in general. Indeed, with the certainty likely to be generated by knowledge that the government is coming to terms with the need for increased revenue and lesser expenditures, the stock market is likely to rise, generating even greater demand for a key industry product, variable annuities.
Image: House Speaker John Boehner of Ohio is pursued by reporters as he walks to the House floor to deliver remarks about negotiations with President Barack Obama on the fiscal cliff, Tuesday, Dec. 11, 2012, on Capitol Hill in Washington. Boehner said President Barack Obama is slow-walking talks to avoid the fiscal cliff, and hasn't outlined spending cuts he's willing to support as part of a compromise. (AP Photo/J. Scott Applewhite)
For a complete look at what's in store for the life and health industry over the next 12 months, visit LifeHealthPro's 2013 Outlook page.