W^H? The Holmes Murphy Blog

  • Two Dreaded Words: Government Shutdown

    We just survived the longest government shutdown in our country’s history. Dysfunction in Washington D.C. is nothing new, and arguably there’s enough evidence to support any theory as to who is at fault for this particular shutdown. We’ve been down this road several times in the modern era. The federal government was shut down eight times during the Reagan administration, each lasting less than four days. Prior to the current shutdown, the most recent was during the Obama administration — over the Affordable Care Act and lasted 16 days. History has shown that previous shutdowns of relatively short duration have a minimal impact on the economy and even less so on the everyday life of the average American citizen. The shutdown during the Clinton administration over Medicare premium increases lasted 21 days after President Clinton vetoed a spending bill proposed by the Republican-controlled Congress.

    Regardless of your political affiliation, the recent shutdown illustrated real-world impact on the lives of both Republicans and Democrats alike. The evening news was full of heart-breaking stories of the impact of federal workers who were furloughed or simply not being paid.

    Consumer sentiment was beginning to waiver according to a survey released by the University of Michigan. Discretionary spending is the first thing to be reduced when the nation starts to feel the pinch. Here are just a few things we saw happen as a result of an extended shutdown:

    • The restaurant and food service industry felt the impact of lower sales, especially in areas reliant on federal workers as their customers.
    • The FDA, responsible for regulating 75 percent of the U.S. food supply, struggled to keep up with routine inspections necessary to prevent foodborne illness outbreaks.
    • The E-verify system used by employers to verify employment status for new workers was shut down.
    • Air travelers across the country felt the pinch as TSA workers called in sick, and over-worked air traffic controllers struggled with the demands of an already challenging job combined with the fact they were not getting a paycheck.

    And guess what? Insurance was impacted, too. Particularly, the National Flood Insurance Program (NFIP). Simply put, it was in jeopardy. The expiration of the NFIP’s authority to provide new flood insurance contracts has potentially significant implications due to the mandatory purchase requirement. By law, federal agencies, federally regulated lending institutions, and government-sponsored enterprises must require certain property owners to purchase flood insurance as a condition of any mortgage these entities make, guarantee, or purchase. Property owners, both residential and commercial, are required to purchase flood insurance if their property is identified as being in a Special Flood Hazard Area (SFHA) and is in a community that participates in the NFIP. Without available flood insurance, real estate transactions in an SFHA can be significantly hampered. In the past, borrowers weren’t able to obtain flood insurance to close, renew, or increase loans secured by property in an SFHA. You don’t need me to explain that this can have a huge impact on the domestic real estate market.

    Health insurance for government employees become a casualty of the shutdown. Unpaid federal workers started receiving bills for their share of healthcare costs that are usually taken from their paychecks. The National Association of Insurance Commissioners released a statement explaining that the shutdown could result in financial hardship for some people and encouraging insurance companies to “exercise judicious efforts to assist these policyholders and work with them to make sure that their insurance policies do not lapse.”

    Undoubtedly, there are lessons to be learned from this 35-day shutdown. The shutdown in 2013 cost the U.S. government an estimated $5.7 billion. Who knows what the final tally will be when we calculate the damage caused by this shutdown!

    The impact on the insurance industry made itself visible and showed the potential to have a significant financial impact on the economy. We can only hope our elected officials learned that shutting down the government has real-world consequences on everyday Americans and future shutdowns should be avoided and not used as part of a political playbook.

    Published on: 01.28.19

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