Lengthy Government Shutdown to Impact Insurers, Says AM Best

Unless Congress reaches a compromise on funding by midnight, there will be no budget and the government will shut down—sending out waves of implications that will disrupt the insurance industry, according to AM Best.

“The potential government shutdown coincides with increasing evidence of a slowing U.S. economy,” said Ann Modica, director of credit rating criteria at AM Best.

“Annual real GDP growth is expected to decelerate in 2025; inflation has been persistently above the federal reserve’s 2.0% target; and more recently, the labor market is showing signs of weakness,” she added in a statement to coincide with commentary from the financial strength rating agency. “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.”

The impacts to insurers would, of course, hinge on the length of a shutdown. AM Best said government shutdowns of the past have been relatively brief. The last one in December 2018 lasted 34 days—the longest period of the five shutdowns over the last 30 years.

Longer shutdowns could directly and indirectly affect insurers as consumers and businesses adjust spending and investment decisions. There could be a disruption in social services, and the stock markets. Government spending would decline, AM Best said.

“The most lingering impact on the US economy is likely to be through the erosion of confidence in the effectiveness of US political institutions and the resulting impact on the country’s sovereign credit ratings,” AM Best added in the commentary. “The high degree of political polarization has made effective governance challenging and has added an uncomfortable amount of uncertainty about US political policy.”

Additionally, the National Flood Insurance Program (NFIP), administered by the Federal Emergency Management Agency (FEMA), expires at the end of Sept. 30. Without authorization, FEMA will stop issuing new flood policies.

Related: National Flood Insurance Program Once Again on the Verge of Expiration

Topics Carriers AM Best