Economic impacts will worsen if the shutdown lingers, the report says. (Credit: Diego M. Radzinschi/ALM)
A government shutdown would cause immediate economic impacts affecting insurers, according to a new report from AM Best.
A shutdown, which could happen Oct. 1 if Congress is unable to pass a budget, would negatively impact consumer sentiment and spending as well as business hiring and investment decisions, the report said. It is also likely to disrupt the stock markets.
The longer the shutdown lasts, the greater the consequences for the economy, which has already been struggling this year.
“The potential government shutdown coincides with increasing evidence of a slowing U.S. economy,” said Ann Modica, director, credit rating criteria, research and analytics, at AM Best, in a statement. “Annual real GDP growth is expected to decelerate in 2025; inflation has been persistently above the Federal Reserve’s 2% target; and more recently, the labor market is showing signs of weakness. Although trade tensions have moderated at times in recent months, they continue to weigh on business sentiment and could further undermine investment and hiring decisions.”
Health insurers could struggle the most with a shutdown. While programs like Medicare would not be affected, a shutdown could delay payments for things like federal employee benefits. Some health insurers may need to borrow from lines of credit until they’re reimbursed by the government.
Shutdown talks are coinciding with a potential lapse in the National Flood Insurance Program, which is set to expire Sept. 30. If it’s not reauthorized in time, FEMA will stop issuing and renewing flood insurance policies.
“The NFIP could not sell new flood policies during a lapse,” said David Blades, associate director, industry research and analytics, at AM Best, in a statement. “As lenders require proof of flood insurance for properties in special flood hazard areas to finalize a mortgage for a property, an NFIP authorization lapse could halt real estate closings, estimated at more than 1,000 per day.”
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