A U.S. government shutdown would have an immediate impact on the economy with implications for insurance companies, with potential longer-term consequences that would vary in severity depending on its length, according to a new AM Best commentary.

The Best’s Commentary, “US Government Shutdown May Increase Economic Uncertainty for Insurers,” states that while difficult to measure, the longer the shutdown, the more damage it will inflict in direct and indirect economic costs. Consumer sentiment and spending, business hiring and investment decisions would be negatively affected; government spending would slow significantly; and there would likely be a disruption in the stock markets.

“The potential government shutdown coincides with increasing evidence of a slowing U.S. economy,” said Ann Modica, director, Credit Rating Criteria, Research and Analytics, 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. 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 US National Flood Insurance Program (NFIP), administered by the Federal Emergency Management Agency (FEMA), is authorized only through Sept. 30, 2025. If Congress does not reauthorize the NFIP, FEMA would stop issuing and renewing flood insurance policies. In the event of a shutdown, property owners, and to some extent, renters, would either be forced to find insurance in the private market, if available, or forgo the coverage altogether. The commentary notes that although peak hurricane season has passed, October storms have been numerous.

“The NFIP could not sell new flood policies during a lapse. 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,” said David Blades, associate director, Industry Research and Analytics, AM Best.

According to the commentary, there could be a delay in payments to insurers for other items such as the federal employee benefits programs, though certain programs such as Medicare would not be affected. If the shutdown were to drag on, some health insurers may opt to borrow from lines of credit temporarily until payments are received from the federal government.

Conversation around the funding bill has focused on the expiring of enhanced subsidies for Affordable Care Act (ACA) individual exchange enrollees, which is expected to severely impact ACA marketplace enrollment as many individuals may no longer be able to afford coverage. AM Best notes that open enrollment for the exchange marketplace begins Nov. 1, which could overlap with a shutdown depending on the duration.

To access the full copy of this commentary, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=358380.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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