Did you Know the Insurance Industry May have Paid for Your Street?
By Bill Hulse, Director, Center for Capital Markets Competitiveness
Every day individuals use our bridges and roads to get to work, deliver products, to drop their kids off at school. The problem we all face is they are crumbling. A diverse group of organizations ranging from the U.S. Chamber to the AFL-CIO have come together to promote investment in U.S. infrastructure. The U.S. Chamber repeatedly called on policymakers to come together and act to fix America’s dangerous roads, bridges, transit, energy, and water systems.
The United States needs to increase infrastructure investment and the insurance industry is an important part of the equation. The American Society of Civil Engineers estimates that the U.S. needs to invest about $2 trillion – or $200 billion each year for 10 years – to adequately update its infrastructure to meet the needs of businesses and the communities they serve. The broader American public agrees that Congress needs to take action: According to a recent Gallup Poll, more than 6 in 10 agree with President Trump’s proposal to enact a $1 trillion program to improve U.S. infrastructure.
You might be surprised to learn that the insurance industry shares the objective of improving of improving our nation’s infrastructure and is well-positioned to increase their investment if Congress provides the right tools.
The insurance industry is one of the largest institutional investors in the United States and its business model is well-suited to making long-term investments that support infrastructure modernization and incite economic growth. Insurance companies own 20% of all outstanding municipal bonds – this grew to $745 billion in 2017 – this is one the primary ways that communities finance infrastructure investment. Additionally, insurance companies may provide direct lending to finance projects, oftentimes partnering with other institutional investors in order to diversify their exposure.
The U.S. Chamber’s study estimates that life insurers alone invested roughly $16 billion in education, $7 billion in transportation, $6 billion in utilities, and $5 billion in health care projects per year through municipal bonds. The $16 billion invested in education could potentially support 0.5% to 1% of the estimated 55 million students in K-12 private or public schools across the country. The $7 billion in investment per year would be sufficient to pave 2,300 miles of road annually, the length of a road from Washington, D.C., to Los Angeles. This level of investment could help rebuild up to about 1% of the total mile network in the U.S. (4 million miles) every year. The insurance industry aspires to increase this investment – as recently as 2017 a 30% increase was estimated.
Policymakers need to act to now to rebuild our crumbling roads and bridges, but they must also understand the needs of investors, like the insurance industry, if they want to attract private capital to fund infrastructure investment. Some of these needs include, but are not limited to, improving the speed at which infrastructure projects are delivered, expanding on and creating new federal financing programs, and ensuring the infrastructure assets are resilient enough to stand the test of time. The delivery speed can be improved by streamlining the permitting process. There are a myriad of financing options – these could include authorizing a permanent taxable direct payment infrastructure bond program or authorizing new credit assistance programs to partner with private capital. There is also some interest in reinstating the tax-exemption for private activity bonds. Finally, investors need to minimize the risk that these investments do not have unexpected costs or depreciation.
The insurance industry is ready to increase their investment. Now is the time for Congress and the White House to come together to come up with a solution that is being demanded by the business community and the general public.