Whoever wins the White House in November, relations between themajor political parties in Washington may be as combative as ever,as neither Democrats nor Republicans are likely to secure controlof both houses of Congress.

That will make it difficult to enact long-stalled legislation onmajor national issues.

The source of this dismal forecast: top executives of theInsurance InformationInstitute (I.I.I.). They co-presented a special address on theimpact of the November elections on insurers during the closing dayof the "7^th AnnualInsurance M&A Symposium," held Thursday at the Union LeagueClub in New York City.

The two execs — I.I.I. President and CEO Sean Kevelighan, andJames Lynch, vice president of data information services and chiefactuary — explored a host of political and economic issues thatwill buffet the industry in 2017, including federal and stateelections, ballot initiatives, catastrophic losses, the growingopioid epidemic, pending mergers and not, least, a tightening ofthe regulatory vice by U.S. and global authorities.

Of particular concern to insurers is "conduct regulation," anemerging concept that calls on insurers to improve their behaviorby aligning corporate and product governance, incentives, marketconduct and ethical codes, among other measures, with the theirmission and values.

"Conduct of business regulation is causing growing alarm amonginsurance companies," said Kevelighan. "It's still not awell-defined concept that the U.S. Financial Stability OversightCouncil and regulators in the G20 countries are embracing."

Global hot spots

Turning to politics, Kevelighan flagged a number of issues thenext American president will have to tackle come 2017. Among them:China as a growing military power, regional tensions in thedeveloping countries, and the rise of the far right in the U.S. andEurope.

In respect to the last, he doesn't foresee extremists in theDemocratic or Republican parties taking power. What can be expectedis more legislative gridlock, as the two parties battle over suchcontentious issues as immigration, tax reform and free trade.Relations on Capitol Hill could be especially contentious, henoted, if Clinton wins the White House and the GOP retains controlof one or both houses of Congress.

Related: Trump presidency a threat to world economy, saysrisk report

In this political environment, social media could become a moreprominent "bully pulpit" of lawmakers and political operativesseeking to elicit public support for policy positions. The"alternative Twitterverse" has gained notoriety during thepresidential campaign, he noted, thanks in no small part to Trump'sextensive use of the social network, his frequent missives landing"body blows" against political opponents.

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The outcome of the November elections will likely havelimited bearing on the industry's "return on equity" orprofitability, said I.I.I. vice president James Lynch. (Photo:Thinkstock)

If past experience is any guide, said Lynch, the outcome of theNovember elections will have limited bearing on the industry's"return on equity" or profitability. Reviewing the historicalrecord since 1950, he noted that ROE has for property and casualtycarriers varied little on average during Democratic or Republicanadministrations: 7.72 percent versus 7.85 percent,respectively.

Industry return on equity hit its peak under the Carteradministration, attaining 16.43 percent; the second highest ROE wasunder the Reagan administration (15.10 percent). ROE sincePresident Truman assumed the White House in 1945 has ranged between3.55 and 8.93 percent.

State's impact on revenue and profitability

A more important driver of industry revenue and profitability,said Lynch, is politics out in the hinterland, as insuranceregulation is primarily a state function. On this level, thepicture is decidedly mixed: Only about a half-dozen states,according to a December 2015 R Street Insurance Regulation ReportCard, received a grade of A- or higher in terms ofindustry-friendly regulation. Those receiving a "B" predominate inthe Midwest, West and Southwest.

Among those receiving "D" marks: California, Montana, Texas,Louisiana, Mississippi, Florida and (not surprisingly, given itsleadership role in state regulation) New York. One state in thereport card received an "F" — North Carolina.

Of the 50 states, said Lynch, Republicans currently control bothchambers of 30 state legislatures and the Democrats 11. "Splitlegislatures" (each party controlling one chamber) prevailelsewhere. This balance of power is likely to remain after theNovember elections, regardless of a Clinton or Trump victory.

"Republicans control most states, and it's likely to remain thatway," said Lynch. "But 20 chambers could switch, mainly in stateswith split legislatures." These include Arizona, Colorado, Iowa,Kentucky, Maine, Minnesota and Washington.

11 state insurance commissioners are vying forreelection

In the 12 states where governors are up for reelection thisyear, he added, 8 Democrats will be defending their seats. Raceswill be particularly tight in Indiana, New Hampshire, NorthCarolina, Vermont and West Virginia. Eleven state insurancecommissioners (5 Democrats and 6 Republicans) are also vying forreelection.

Turning to ballot initiatives, Lynch noted that 9 states willhave referendums proposing legalization of marijuana. Arkansas hastwo: One would let patients grow their own cannabis.

Lynch expressed concern that, should the state ballotinitiatives pass, insurers could be facing a rise in workercompensation claims as more employees "come to work high." A risein claims could also negatively impact life and P&C insurers,given the prospect of more marijuana-related accidents and deathson the nation's highways.

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Some 54 mergers among U.S. insurers in 2016 are nowcompleted or pending, according to I.I.I.'s Kevelighan.(Photo: Thinkstock)

Between the first quarters of 2014 and 2016, he noted, the costof accidents rose "dramatically," boosting insurers' costs fromlosses. Among auto insurers, the breakdown, as measured by FastTrack Monitoring System, included the following increase in losscosts:

• Bodily injury: 9.6 percent;

• Property damage: 14.7 percent;

• Personal injury protectionL 18.4 percent;

• Collision: 11.1 percent; and

• Comprehensive: 11.0 percent.

"Compare these increases with the rise in consumer pricesoverall, which edged up just 1.7 percent between 2014 and 2016,"said Lynch.

Turning to opioids — natural and synthetic drugs most often usedto medically to relieve pain and that have morphine-like effects —he noted the U.S. is experiencing a "nationwide epidemic." That'sresulted in a 25 percent increase insurance claims tied to thedrugs. Some 13 states now limit the use of worker compensationinsurance for covering prescriptions opioids.

Peering into the crystal ball

What will be top-of-mind for in the industry in 2017? Inaddition to worker comp regulation, Kevelighan identified severaltopics, including autonomous (self-driving) vehicles, peer-to-peerinsurance, cybersecurity, the "sharing economy," politics and (inrespect to reinsurers) overcapitalization.

Kevelighan voiced confidence that insurers will be able toabsorb U.S.-insured catastrophic losses without unduly impactingtheir balance sheets. In 2015, these losses (from hurricanes andthe like) totaled $15.2 billion, down from $15.5 billion in2014.

To better absorb such losses, he added, the industry willfurther consolidate. Some 54 mergers of U.S. insurers in 2016 arenow completed or pending. This compares with a 564 deals concludedin 2015 valued at $194 billion, a whopping 517 percent increaseover the $38 billion in transactions (506 M&A deals) completedin 2014.

"Last year's M&A transactions were just staggering," saidKevelighan. "These deals will likely continue. We'll just have tosit back and see how the industry will shakeout as a result of allthe activity."

Related: Agency mergers and acquisitions continue to bestrong for first-half 2016