Insurers may avoid the potential turmoil of a Trump second term

As Donald Trump prepares to resume the US presidency on January 20, he has promised wide-ranging changes to US fiscal, trade, environmental and immigration policy.

However, his return is likely to cause less immediate disruption to the insurance sector, according to one scholar. Jerry Theodorou, director of the finance, insurance and trade programme at conservative think tank R Street Institute, says he doubts the second Trump administration will put much effort into changing insurance policy. “Insurance is highly complex and regulated at the state level,” he tells Insurance Day. “As insurance is not a ‘red meat’ issue, such as immigration and protectionism, I do not foresee insurance being high on the new administration’s agenda.”

Jerry Theodorou, R Street Institute

The individual states and territories handle almost all insurance regulation, especially in general insurance and neither party favours altering this distribution of responsibilities. The 2024 elections produced relatively little change in party control at the state government level.

A network of right-wing thinktanks, led by the Heritage Foundation, has produced a lengthy federal policy programme called Project 2025. Although Trump has never formally adopted the Project 2025 agenda, many observers believe it will influence public policy during his second administration.

Regulatory overhaul

Project 2025 contains one major insurance policy initiative: the manifesto advocates the privatisation of the National Flood Insurance Program, which is administered by the Federal Emergency Management Agency (Fema). The document also calls for the abolition of the federal financial conduct regulator, the Consumer Financial Protection Bureau (CFPB), established by the Dodd-Frank Act.

One Republican state elected official has called on Trump to address dysfunctional property insurance markets in some states. Jimmy Patronis, Florida’s chief financial officer, called on Trump to abolish the Federal Insurance Office (FIO), a unit of the US Department of the Treasury that researches insurance and co-ordinates with foreign regulators.

Patronis also urged Trump to lower interest rates, slow inflation and “pressure European reinsurers to abandon their environmental, social and governance [ESG] mandates”, which he said drove up reinsurance costs for US companies.

“Insurance is highly complex and regulated at the state level. As insurance is not a ‘red meat’ issue, such as immigration and protectionism, I do not foresee insurance being high on the new administration’s agenda”
_{Jerry Theodorou
R Street Institute}

The Dodd-Frank Act of 2010 set up the FIO, alongside the CFPB. The FIO does not have direct regulatory power – rather, it “has the authority to monitor all aspects of the insurance sector”, especially insurance access for marginalised communities. In international regulatory matters and fora, such as the International Association of Insurance Supervisors (IAIS), the FIO acts as the US representative.

Senator Ted Cruz, a Republican from Texas, introduced an unsuccessful bill that would have abolished the FIO in 2023. The National Association of Professional Insurance Agents (PIA) supported the proposed legislation.

In his appeal to Trump, Patronis complained the FIO intruded on state responsibilities for insurance regulation, saying the agency “is nothing more than the camel getting its nose under the tent where it doesn’t belong and making things worse”.

Theodorou doubts the FIO will be high on the new administration’s list of targets. Trump and his allies do want to cut government spending and workforce numbers, but Theodorou says when he studied the office a few years ago, he found it only had 13 staff.

“If the goal of the new administration is to reduce the size of federal government, it strikes one as foolish to go after a miniscule government agency when there are so many large ones with plenty of fat,” he argues.

Tariff threats

If Donald Trump has a signature policy, it may be tariffs. On November 25, he threatened to levy 25% tariffs on Canadian and Mexican goods and 10% tariffs on goods from China.

Tariff proponents can offer several reasons to favour import taxes: they can encourage or compel an increase in domestic manufacturing or serve as leverage in trade negotiations. Opponents argue tariffs would be necessarily inflationary.

Trump won re-election in large part because president Joe Biden struggled to counter an inflationary spike that peaked in mid-2022, reaching 9.1% year-on-year that June. Economic inflation has proved a major problem for insurers, driving up claims costs. As of October 2024, year-on-year consumer price index inflation was 2.6% in the US.

Theodorou suggests insurers will demand “serious consideration about the potential harmful impact of tariffs” from the Trump administration. For property insurers, tariffs will make construction materials more expensive, which makes insurance claims larger, which forces carriers to hike rates.

“It’s a vicious cycle desired neither by insurance buyers nor by insurers,” Theodorou says.

Climate policy

The Republican Party in general, and Trump’s faction in particular, are hostile to the idea of anthropogenic climate change. Trump pulled the US out of the Paris Agreement in his first term (Biden returned the US to the agreement).

Republican state insurance commissioners may also refrain from discussing climate change, although insurance regulators are united in promoting and funding better data gathering and risk mitigation activities.

Whatever the Republicans believe about climate change, insurers are certain it is happening and, worried Trump will curtail environmental policy initiatives, Theodorou says. “Just as there are no atheists in foxholes, there are no climate change deniers in insurance company C-suites,” he adds.

After Trump’s re-election was confirmed, the American Property Casualty Insurance Association issued a statement congratulating him, and complaining about excessive regulation, “record economic inflation and legal system abuse”. However, Trump is likely to spurn insurers’ overtures is tort reform, Theodorou says.

Trump and the Republican-majority Congress can only make laws concerning the federal court system. Although large insurers will frequently find themselves in federal court – since these courts hear cases where parties are from different states – most legal actions in the US take place in state courts under state rules.

“The Trump administration is populist, much more aligned with the plaintiff bar, for whom tort reform is anathema”, Theodorou says, adding Trump has himself been a plaintiff in about 4,000 legal actions. “One cannot imagine him being in favour of making it more difficult to bring a suit.”