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Lots Of Change In Store For Industry

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The life insurance industry will be joining the crowd in 2009 in welcoming in a year that will certainly be challenging–but one which could bring unprecedented opportunity for positive change.

For example, $3 trillion in tax cuts will be expiring over the next 2 years. There is also growing political support for major changes in how health care is delivered and paid for.

And, after pursuing go-go returns on their investments that ultimately didn’t materialize, to say the least, consumers will be more apt to look at relatively conservative insurance products in a more positive light than in the recent past.

Pressure will be everywhere for change in 2009, and the decision by the Securities and Exchange Commission last month to regulate equity index annuities as securities is just a harbinger of things to come.

That change is not due to come until 2011, but agents and carriers are certain to start soon preparing for it, although there are strong signs industry groups will join together to challenge it in court.

Consolidation is also likely to occur in 2009, a reaction to the financial tsunami that occurred in 2008. Adding to the considerable pressures that surfaced in the last two quarters of 2008, the commercial property market, on which many insurers hold mortgages, began showing strong signs of deterioration as the New Year began.

And in Washington, the incoming Obama administration and Democratic legislative leaders were putting the finishing touches at year-end on a huge stimulus package they planned to unveil soon after Congress reconvenes Jan. 6.

One of the provisions it is certain to include is funding for electronic transmission of healthcare records, according to comments by Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, in early December.

A study completed later in the month by the authoritative Congressional Budget Office indicated that substantial savings will be achieved by making health records more portable. In addition, the electronic records component is likely to be the start of incremental changes in healthcare delivery by the incoming administration to be acted on throughout the next Congress.

Next on the agenda will be extending the State Children’s Health Insurance Program, whose current authorization expires March 31. While it is unlikely to be extended for a lengthy period, continuation of SCHIP will give Congress some breathing room to consider further steps in improving the program over the next two years.

Also on the agenda for 2009 will be dealing with an issue critical to the life insurance industry, providing some certainty on the estate tax.

Congress has been nearing a consensus on this issue of a permanent extension of the 2009 level, with most current proposals calling for a $3.5 million per-person exemption, indexed for inflation, and a 45% maximum tax rate.

While the devil will be in the details, this is likely to be a part of the middle income tax cut package Congress will tackle as soon as it finishes work on the stimulus package.

That leaves 2 critical decisions regarding the industry that Congress and the administration must deal with–first, how to reconfigure the tax code to deal with the $3 trillion in levies that expire in the new Congress; and second, reorganizing regulation of the entire financial services industry.

Those issues are likely to be pushed over into 2010, but they will be dealt with in the current Congress.

The likelihood of major changes in financial services regulation–especially for insurers–is certain by the end of the new Congress.

The only question is what form it will take–whether it will include federal regulation on top of state regulation, or merely either state or federal regulation.

In any case, the likelihood of an optional charter for insurers is fading. The entire regulatory landscape for financial services is certain to be examined in detail, and insurers might be forced to find a home within a smaller range of existing federal agencies.

For example, their options might include being regulated by a combined Securities and Exchange Commission/Commodities Futures Exchange Commission, or within the Office of the Comptroller of the Currency or the Federal Reserve Board.

Besides the CFTC, the Office of Thrift Supervision and the National Credit Union Administration are among federal agencies Congress and the Obama administration might decide to combine with other agencies.

As for taxes, a strong option for Congress is to bring about change, and possible additional revenues, by adopting the policies used to draft the Tax Reform Act of 1986; that is, taking with one hand and giving with the other.

In any event, the financial ordeal we have endured over the past year or so is certain to result in massive changes, hopefully not to our pocketbooks, but certainly, over time, to the retailing, financial, manufacturing and other worlds that we have become comfortable with over the last several decades.

Perhaps it was put best by Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, in a recent speech. The next year, he said, “will be the best year for public policy since the New Deal.”


“The likelihood of an optional charter for insurers is fading. The entire regulatory landscape for financial services is certain to be examined in detail, and insurers might be forced to find a home within a smaller range of existing federal agencies.”


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