Stimulus Bill Will Have Minimal Insurance Industry Impact

Workers’ Comp and Commercial Lines to See Some Benefits

The $787 billion stimulus package passed by Congress last month looms as the largest mountain on the country’s newly changed economic landscape. But despite hope that it will jumpstart spending, most insurance industry experts say the bailout will have little impact on the insurance world.

The Insurance Information Institute III, which along with Fireman’s Fund gave a joint presentation on the bill last month, pointed out that, despite the large size of the stimulus, only about $140 billion, will go toward direct spending on construction and related projects. It’s that spending which will have the most ancillary benefits for insurers, agents and brokers, too; although the impact is not expected to be huge.

According to III economist Robert Hartwig, the insurance lines most likely to benefit are workers’ compensation, commercial auto, inland marine, commercial property and liability and surety. The stimulus bill also includes about $38.1 billion in new infrastructure spending, according to the III, and that means, generally, the bigger the state, the more benefit for commercial insurers. The five most populous states are receiving the most money – Calif., Texas, N.Y., Flor. and Ill. Those states are projected to add or retain over 1.2 million jobs because of the spending – meaning a noticeable improvement for those selling workers’ comp lines.

Hartwig said workers’ comp will likely benefit the most from stimulus-related spending – largely driven by jobs created and preserved through various projects. Hartwig said the 3.5 million jobs would translate into roughly $1 billion in workers’ compensation premiums.

Overall, however, the stimulus package will result in no more than a 1 percent impact on net premiums written – roughly $4.5 billion. And since the rollout of the stimulus could take over a year, those benefits might not materialize until 2010 or beyond.

Bracing for Impact

With all that spending, many in the industry expect some kind of boost – although many aren’t sure what exactly it will be, or how much it will help. Still, insurers agents and the like are anticipating something.

“We are hoping the stimulus will help all the various parts of the insurance market to have an opportunity,” said Jeffrey Langer, the Hartford, Connecticut-based chief underwriting officer for Travelers Construction.

John Carmody, executive director of The Advantage Group LLC, a network of 14 agencies in Washington, said his group hopes for one, but it may be in farther away than people expect.

“Will it have an effect on insurance agencies? We sure hope so,” he said. “My personal view of that is we’re going to have more pain in front of us before the stimulus package begins to kick in. Then, where you are and what state you’re in will make a big difference… it will have some impact, but a lot of the heaviest spending is on contracting and things like the electronic grid and highways, environmental and stuff like that will probably have a more beneficial impact to brokers than main street agents that write small contractors.”

Some agents expect a benefit in that their clients will benefit – meaning they can keep paying premiums. “The biggest impact will be how it will affect clients,” said Mike Heffernan, president and CEO of the San Rafael, Calif.-based Heffernan Group. “A lot of clients could potentially get help – nonprofit clients, small businesses, from a credit standpoint, that can use the funding to keep going. Our whole livelihood is focused on our clients’ success. Anything that will help the people we serve will help the entire industry.”

He added that many clients still haven’t started talking about it, and whether it will affect them.

Still agencies that have a large book of commercial and construction business are expecting the stimulus to help them.

“It will have a big impact on us because of additional jobs being let by the Oklahoma Department of Transportation,” said Frank Smith, vice president and head of the construction division at Oklahoma City-based C.L. Frates and Company.”Our book of business is 90 percent or more Oklahoma contractors and they’re going to have a lot of work. That’s going to take a lot of new employees.

Smith said his clients, particularly those in metro areas who specialize in heavy highway jobs, are “hiring a whole lot of people. That is the biggest impact so far. I was at one of my customer’s offices (recently). In a two-hour time period I saw somewhere in the neighborhood of 30 to 40 applicants. They are gearing up.”

The Rush’s Downside

In the rush to get new projects started, Langer said there is also the possibility that the stimulus package could create some additional risks for insurers – particularly in the area of safety.

“One thing that insurers need to consider is that there are many contractors out there looking for work, and some will be bidding on work they may not be qualified to do,” said Travelers’ Langer.

And despite construction unemployment down in the mid-teens across much of the country, there could also be a problem as projects begin to ramp up, he added.

“Many firms had to reduce staff,” Langer said. “As contractors begin to ramp up and bid, there’s a question whether they will be able to find the labor to accomplish the goal costs as low as they bid. From a contractual standpoint, it could be a problem.”

Added John Komidar, second vice president of Travelers Construction Risk Control: “The construction industry has been impacted by delays and job shutdowns, which have driven up unemployment and tightened operating budgets. Contractors need to continue to maintain a strong emphasis on safety management, including safety practices and training, to help limit losses and the impact these could have on their bottom lines.”

Stimulating Business Owners

Some insurance agencies could see benefits from the stimulus package that have nothing to do with premiums or the business they write. The package includes some changes to the tax codes which could end up benefitting owners – and buyers – of insurance agencies.

One of those changes is a provision that allows a company to change from a C corporation to an S corporation in seven years, rather than 10. That change could help speed sales and acquisitions of agencies, said Terry H. Buckner, president and CEO of The Buckner Co. headquartered in Salt Lake City, Utah. “Some agencies looking to sell can now do that sooner, so we might see some action that’s helpful to brokers with regard to sales and acquisitions,” he said.

There are also administrative changes that insurance agencies – as employers – need to keep in mind. These include:

• Tax credits worth up to $400 for workers, which will be achieved by adjusting tax tables.
• Subsidies, in the form of tax credits for employers that can offset the cost of providing COBRA coverage to recently laid off workers
• Minimum wage increases to $9.50 per hour by 2011.

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Source: Insurance Information Institute