Letter from Washington: Finance and insurance predictions for 2012
Happy New Year! It’s time to take down the holiday decorations, finish the eggnog, and get back to work. It’s also time for some predictions about what’s going to happen in the finance, insurance and real estate world during 2012 here in Washington, D.C. I’ll check back on these at the end of 2012.
So, without further ado, here are five predictions for what will happen in Washington:
- The economy will continue to improve. . .slowly: A true “double dip” recession remains unlikely. Instead, we’ll see continued slowness without actual economic decline. Unemployment should drop somewhat as well, but I’d expect it will remain above 7% on Election Day 2012. The financial services sector should recover, too, but not quickly. P&C insurance industry employment should expand very modestly after shrinking for three straight years.
- Significant flood insurance reform will be signed into law: After a long, long wait, the Senate will finally pass a major flood insurance reform bill. Although there will be further delays as it hashes out differences with the House’s bill, flood insurance reform is going to happen during 2012 one way or another. President Obama will sign the bill.
- No significant modifications will be made to Dodd-Frank, Sarbanes-Oxley or any other significant financial law: Leaders on the right and, to a lesser extent, the left, have plenty of criticisms of these laws. Many of these criticisms are justified, particularly when it comes to Sarbanes-Oxley. Although small tweaks are possible, the laws aren’t going to change drastically. There just isn’t the political will for any significant changes.
- Obamacare will remain largely untouched; no serious Republican “replace” plan will emerge: Although tweaks, again, are possible, Congress’ current inability to legislate on any major issue means that any repeal of the Patient Protection and Affordable Care Act is impossible. Likewise, Republicans will continue to fall down on their plans to draft a viable replacement.
- The Consumer Financial Protection Bureau will not get a confirmed head: Frustrated with their inability to block health care reform, many who oppose the president’s agenda will coalesce around blocking CFBP from doing much. In this, they’ll probably succeed. While I’m sympathetic to the idea that CFBP should do as little as possible, I’m not at all sure that this is a good political strategy. In fact, it may give the current president a campaign issue.
- Meaningful crop insurance reform will pass at least one house of Congress: I don’t know if we’ll get a new crop insurance program but, given the current zeitgeist and general distaste for many agricultural subsidies, a crop insurance reform bill of some sort is likely. Some proposals, like one the Farm Bureau’s board recently approved, have good aspects. Others, like the “shallow loss” proposal moving forward right now, are almost all bad. Whatever happens, one of these major proposals is going to pass at least one house of Congress during 2012.
- No federal “backstop” (insurance/reinsurance takeover) proposal will move forward absent a major disaster: This is a pretty safe prediction. Although hearings are possible, particularly on some Senate-proposed earthquake backstop bills, I don’t see any real chance that the bills will move forward anytime soon until and unless a major disaster takes place. If that happens, all bets are off and the proposals could well move forward and even become law.
- OFC will also go nowhere: Any thought of an optional federal charter is also dead. Even if some bills are proposed, I can’t see any of them even getting a serious hearing. And it’s likely that nobody will even bother to drop a bill.
- Fannie and Freddie will continue along unchanged: With Congress unwilling and unable to get rid of the 30-year fixed rate mortgage and the huge network of subsidies that go along with it, Fannie Mae and Freddie Mac will also slog along in much the same form.
I’m hearing that some North Carolina legislators are trying to introduce a catastrophe fund bill in that state. To say the least, this is a truly awful idea. North Carolina’s coastal insurance reforms, for the most part, are working well. New companies are coming in, price increases are modest and coastal safety is improving. Yes, coastal residents are paying more but on the whole, they paid too little for too long.
A catastrophe fund wouldn’t reduce rates at all and it might well increase them. It also would put taxpayers all over the state on the hook for huge bills in the future. It’s a terrible idea that doesn’t even deserve a hearing in the legislature.
OOTS editor R.J. Lehmann recently reminded me that the 200th anniversary of the last and most severe of the four major New Madrid Earthquakes will take place on February 7, 2012. The earthquake largely destroyed New Madrid, Mo. and did serious damage in St. Louis. The fault has continued to be active but without earthquakes that are perceptible to most individuals or that result in serious damage. Seismologists, however, estimate that there’s as much as a 40% chance that a serious earthquake could shake the fault sometime in the next fifty years. Bottom line: if you live sorta near the Mississippi anywhere between Memphis and St. Lous, get a quote on an earthquake insurance policy. You might need it.
Until next week.