Strong bipartisan interest is emerging in Congress to re-examine the insurance industry’s antitrust exemption through the McCarran-Ferguson Act.
The interest, voiced recently in both houses of Congress, is being expressed even as the life insurance industry seeks to have Congress approve legislation creating an optional federal charter, something lobbyists for the American Council of Life Insurers, Washington, confirmed in comments at the ACLI’s annual meeting in Orlando Oct. 22-25 (see story above).
Ironically, emergence of the antitrust issue to the top of the congressional agenda has nothing to do with the life insurance industry.
And, the National Association of Insurance Commissioners, Kansas City, Mo., is well aware of the issue. A commissioner testified before the Antitrust Modernization Commission on Oct. 19 supporting McCarran-Ferguson.
Michael McRaith, Illinois director of Insurance, cautioned against repeal at the hearing, noting that McCarran-Ferguson “fosters a vibrant, competitive insurance marketplace” when combined with effective state insurance supervision.
McRaith testified on behalf of Illinois and the NAIC at the hearing.
Andrew Heimert, executive director and general counsel of the Commission, said the hearing was held because the Commission was aware of congressional interest in the matter, not only as it covers insurance, but also generally. He said hearings were held on McCarran-Ferguson and the Shipping Act, an immunity for ocean vessels, in anticipation of the Commission presenting a report to Congress on the issue of exemptions by April 2007.
“We wanted to hold hearings on specific immunities that would help us illustrate some of the more general points we expect to make in our report,” Heimart said.
The growing interest in revisiting the issue has to do with congressional irritation with the property-casualty insurance industry, not with any life issue.
Specifically, legislation repealing the McCarran-Ferguson Act, S. 4025, was introduced in the Senate in late September by Sens. Arlen Specter, R-Pa., and Pat Leahy, D-Vt., because property-casualty insurance industry opposition effectively killed their efforts to set up an alternative claims resolution system for those injured by exposure to asbestos in the workplace.
And, 2 weeks ago, Sen. Trent Lott, R-Miss., told The New York Times that he planned to introduce such legislation, partly because of the way insurers handled all flood/wind claims resulting from Hurricane Katrina last September.
Then, on Oct. 19, Democratic Reps. Gene Taylor, Mississippi, and Charlie Melancon, Louisiana, said at a news conference that a Democratic-controlled House would seek to end the antitrust exemption for the insurance industry because they contend insurance industry practices shifted the financial burden of Hurricane Katrina claims onto the taxpayer.
There are 15 other House members of the Katrina task force.
Styling themselves the Katrina Task Force, the 2 congressmen say they will also recommend repeal of the McCarran-Ferguson Act antitrust exemption, as it relates to what they allege is “price-fixing” in the property insurance market.
“We’ve already had preliminary discussions with Reps. Nancy Pelosi, D-Calif., House minority leader, John Dingell, Mich., ranking minority leader at the House Energy and Commerce Committee, John Conyers, D-Mich., ranking minority member of the House Judiciary Committee, and Barney Frank, D-Mich., ranking minority leader of the House Financial Services Committee,” Rep. Taylor said.
These congressmen are presumptive heads of those panels if Democrats take over the House in the next Congress.
“And No. 1 is to take away the antitrust exemption of the insurance industry,” Rep. Taylor said. “No one should be above the law.”
Taylor said at the press conference the insurance industry was given the exemption “in about 1946. I don’t know why Congress did it then, but it makes absolutely no sense now.
“At the same time in 1946, when Congress gave the insurance industry an exemption from the antitrust laws, they kicked all responsibility for regulating the insurance industry to the states,” Taylor said.
“In some high tax, high service states, that works OK, but in a low tax, low service state like Mississippi, it hasn’t worked at all,” Taylor added. “People really don’t have anyone to turn to.”
That would play into the hands of a large segment of the life insurance industry, industry experts contend.
Some pockets of doubt remain within the life insurance industry over the efficacy of an optional federal charter, and the National Association of Insurance and Financial Advisors, Falls Church, Va., remains on the fence on the issue.
But the American Council of Life Insurers, Washington, is a strong supporter, and the Association for Advance Life Underwriting, Falls Church, Va., is also voicing support.
The American Bankers Association, Washington, has thrown its support behind an OFC through its American Bankers Insurance Association, and the Financial Services Roundtable, Washington, another banking group, has added a number of insurance company members to its roster.
At the same time, the ACLI is cautious about the timeline required to bring this goal to fruition. For example, in comments on Oct. 22 at the ACLI’s annual meeting in Orlando, Kim Dorgan, executive vice president of federal relations, acknowledged that enactment of a federal charter option is not in the near future, predicting that passage by both chambers could take from 2 to 4 years, and perhaps 5, depending on how the ultimate bill is crafted.
But the complaints about p-c industry practices indicate that Republicans as well as Democrats in the Congress want the issue of the antitrust exemption placed on the front burner for action next year, something that would play into the hands of OFC supporters.
One key player in a Democratic-controlled House will be Rep. Paul Kanjorski, D-Pa. He is the presumptive head of the Capital Markets Subcommittee of the House Financial Services Committee if the Democrats win control of the House.
In the recent past, he has been supportive of an optional federal charter, but at the last moment backed off from joining Rep. Ed Royce, R-Calif., in being a co-sponsor of such legislation when Royce introduced it in the House in late September.
Ted Besesparis, vice president of the Professional Insurance Agents of America, Alexandria, Va., which is opposed to a federal charter for p-c, confirmed that Kanjorski “seems attuned to the industry, and appears to have a good grasp of how the industry works.”
On the OFC bill, Besesparis said, Kanjorski “seems to have taken a go-slow approach. He has indicated that he might consider it for life, but he seems reluctant to consider it for p-c.”
Regarding the House Democratic leadership, Besesparis said, “According to press reports I have seen, the 17-member Katrina Democratic group in the House has endorsed the proposal to end or modify McCarran-Ferguson, but the leadership has not formally endorsed this.”
In his testimony before the Antitrust Commission, McRaith didn’t deal directly with the latest challenges to state regulation of insurance, but did defend the current industry regulatory scheme.
“McCarran’s limited antitrust exemption permits supervised cooperative activities by insurers to work in concert with comprehensive, cradle-to-grave consumer protections to promote competition, enhance consumer choice and help maintain marketplace integrity,” McRaith said.
“Discussions of its repeal must be considered in the broad economic context and cannot be viewed in a legalistic vacuum.”
McRaith noted in his testimony that that the core priority of state insurance officials is to protect consumers.
He also highlighted what he termed “the unique characteristics of insurance,” which he contended warrant special consideration under federal antitrust laws and make comparisons to other financial sector products “inherently misleading.”
He also said that state law and supervision provide active oversight of insurers’ cooperative endeavors and prohibit anti-competitive behavior.
“The third-party organizations involved with cooperative activities are licensed, structured and regulated to be consistent with state law,” McRaith said.
“Price fixing, bid-rigging, tying, boycotting or any practice that undermines competition is simply not allowed and is subject to prosecution by state insurance officials and law enforcement personnel,” he said.
McRaith is chairman of the NAIC’s Broker Activities Task Force, formed in response to revelations by New York Attorney General Eliot Spitzer of widespread bid-rigging and other anti-competitive practices.
In his testimony before the panel, McRaith outlined the NAIC’s efforts to combat illegal activities by promoting broker compensation transparency; to coordinate multi-state investigations of brokers’ and insurers business practices; and to ease the process of providing anonymous “tips” to alert insurance officials of unlawful or unscrupulous behavior.
“NAIC members have worked on these issues with attorneys general from around the nation, and have guided resolutions that have returned more than $1 billion to policyholders and imposed business reforms that honor consumer protections,” McRaith said.
“The NAIC looks forward to continued work with federal and state officials, consumers, large and small industry participants, and other interested parties to prevent and punish anti-competitive practices,” he said.