The McCarran-Ferguson Act, which has kept insurance regulation in the hands of states since its enactment in 1945, should be repealed, according to New York State Attorney General Eliot Spitzer.
In testimony submitted to the Antitrust Modernization Commission, Mr. Spitzer says the law has become outdated and potentially a hurdle to enforcing antitrust laws. “The McCarran-Ferguson exemption to the federal antitrust laws for the business of insurance illustrates an industry-specific exemption that is ripe for reexamination and, in our view, repeal,” Mr. Spitzer says.
“The exemption has interfered with the ability of public and private enforcers to readily use the full panoply of federal antitrust remedies to correct, deter and obtain compensation for abuses in the insurance sector. A uniform federal antitrust standard would facilitate antitrust enforcement and benefit plaintiffs and defendants alike, in contrast to disparate actions, under different laws, that may yield inconsistent results.”
However, Mr. Spitzer also argues that the repeal of McCarran-Ferguson should not be the death knell of the state regulatory system. Rather, he says that any repeal should be worked to require insurance companies to comply with federal antitrust laws as well as the state regulators. “Because state regulation of insurance is complex and reaches far beyond the concerns of antitrust law, state regulation should not be preempted,” he says. “By the same token, state regulation should not exempt insurers from the federal antitrust laws. Rather, the state action doctrine, as it is applied generally, should be adequate to deal with the insurance industry as well.”
Mr. Spitzer says that revisiting the exemption is necessary, citing the McCarran-Ferguson Act as a law that the market has passed by and noting that it is a reminder that lawmakers should keep a closer eye on the regulatory regimes they pass after they are enacted.
“Experience with McCarran-Ferguson indicates that there is a need to reexamine industry-specific exemptions periodically,” he says. “Markets change, [and] in many cases eliminate the need for broad exemptions. McCarran-Ferguson is one example of an exemption that has no apparent business justification and impedes free and open competition in a major sector of the U.S. economy.”
Those operating within the insurance industry have a different opinion, however, viewing the exemption as a necessary, as well as a positive tool for insurance companies, agents and their consumers.
“We believe that the state regulatory system, which is based on the McCarran-Ferguson Act, has provided a positive environment for insurance agents and the public,” says David Woods, president of the National Association of Insurance and Financial Advisors, Falls Church, Va. However, Mr. Woods adds, “we also believe that reform is necessary.”
Mr. Woods said that NAIFA is remaining neutral on the broader reform proposals, at least for now.
“We are studying all options,” he said. “We support none and oppose none at the moment.”
Those representing the insurance companies went a step further to argue that any revisiting of the exemption should be undertaken as part of a broader effort in insurance regulatory reform.
Whit Cornman, a spokesman for the American Council of Life Insurers, Washington, says that the exemption provided by the McCarran-Ferguson Act is an “integral” piece of the insurance regulatory system, adding that it “would not be a benefit to anyone, be it insurers, regulators or consumers,” to change the law without looking at the insurance regulatory system as a whole. As an example, Mr. Cornman says, a reexamination could be appropriate as part of the enactment of an optional federal charter.
Craig Berrington, senior vice president and general counsel for the American Insurance Association, Washington, also voices support for the enactment of an optional federal charter in comments submitted to the AMC. Under the AIA’s optional federal charter proposal, Mr. Berrington says that federally regulated insurers would lose their antitrust exemptions, except in areas in which they remain subject to the states and with safe harbors for instances in which specific anti-trust protection is necessary, such as the development of common policy forms.
In testimony, Julie Gackenbach, assistant vice president of government affairs for the Property Casualty Insurers Association of America, Des Plaines, Ill., says that the exemption allows for insurers to undertake the special efforts particular to the insurance industry.
“The existence of this exemption allows companies to exchange critical data regarding losses and other factors, facilitates the development and operation of assigned risk plans, facilitates participation and oversight of state guarantee funds, permits state control over liquidations of insurers, and promotes competition in the marketplace,” Gackenbach says.