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McCarran Repeal Legislation Introduced

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Legislation introduced in the Senate on Feb. 15 that would repeal the insurance industry’s antitrust exemption under the McCarran-Ferguson Act would impose federal regulation on top of state regulation, according to industry officials and lawyers.

The bill, S. 618, The Insurance Industry Competition Act of 2007, is radically different than legislation introduced last September in the Senate.

Among its provisions is a section that would eliminate a prohibition imposed on the Federal Trade Commission’s authority to investigate insurance companies unless directly authorized to do so by Congress.

According to industry officials, that provision was added in 1980 at the life insurance industry’s behest after then-FTC Chairman Mike Pertschuk sought to undertake studies comparing life insurance products with mutual funds.

Additionally, those who are touting it as a “back door” way to get an optional federal charter are being cautioned that it would do no such thing.

“The issue of whether to amend the McCarran-Ferguson Act should be considered along with proposals to create an optional federal charter (OFC) regulatory system for both the property-casualty and life insurance industries,” said Michael Kerley, senior vice president of federal government relations for the National Association of Insurance and Financial Advisors.

“While NAIFA remains neutral on the OFC proposal, supporters of OFC base their support on the premise that a federal regulator deemed helpful to the insurance industry, namely an independent regulator within the Department of the Treasury, would be created,” Kerley explained. “This has worked for national banks, for example.”

But Kerley cautioned, “NAIFA does not believe that elevating the FTC as the regulator of the business of insurance is preferable to the regulatory system now established by the states.”

He said NAIFA “does not view this federal bill in any way to be a positive ‘back door’ approach to achieving the same results as those expected from the optional federal charter proposals that have been introduced in Congress in the past year.”

The American Council of Life Insurers also declined to embrace S. 618 even though establishing an OFC is its legislative priority.

“On repeal of McCarran-Ferguson legislation, we believe this issue should be addressed within the context of comprehensive insurance reform,” said Jack Dolan, an ACLI spokesman.

S.618, an abbreviated 2-page bill, is far different than similar legislation introduced last September to no consequence by Sen. Arlen Specter, R-Pa., and Sen. Patrick Leahy, D-Vt., then chairman and ranking member, respectively, of the Senate Judiciary Committee.

The two have since exchanged positions and joined with Sen. Harry Reid, D-Nev., Senate majority leader, and Sen. Trent Lott, Senate minority whip, to introduce legislation that would provide the FTC and the Department of Justice joint antitrust enforcement authority over the insurance industry.

Companion legislation has also apparently been introduced in the House, although none of the potential sponsors have confirmed they have introduced it.

The legislation provides no guidance as to when or how the agencies are to tell the insurance industry the manner in which they will enforce the law. Nor does the legislation provide–or require the agencies to provide–any safe harbors that would allow, for example, the sharing of loss data or dissemination of uniform forms–a critical provision that is creating great concern in the property-casualty industry. Last year’s legislation provided such safe harbors.

In his comments, Kerley said NAIFA has been a “staunch defender” of McCarran-Ferguson Act since its enactment in 1945.

For NAIFA, he said, “the McCarran-Ferguson Act is the bedrock of the state insurance regulatory system. Without it, all segments of the insurance business would be regulated by the federal government–specifically, by the Federal Trade Commission and the Department of Justice.”

He explained that S. 618 would amend the McCarran Act in such a way as to bring the FTC and the DOJ into direct regulation of unfair methods of competition, which is now the province of the states.

“Bringing the FTC and DOJ into this area would in fact supplant the state laws that currently exist in all states,” he said. The primary losers in this action would be property-casualty insurance companies, which now are permitted to share loss data.

He added, “It’s likely that smaller companies would be hard-pressed to replace the data they now get from companies sharing that information. The life insurance side of the industry may not be impacted, depending on how the FTC or the DOJ decides to implement the changes made by the Senate bill. There is little, if any, sharing of loss data among life insurance companies.”

McCarran-Ferguson has effectively ceded insurance regulation to the states since its enactment in 1945. That McCarran-Ferguson is the law of the land was specifically reiterated in the Gramm-Leach-Bliley Act of 1999.

The McCarran-Ferguson Act currently exempts the “business of insurance” from federal antitrust laws to the extent that it is regulated by the states.

In a statement released when the bill was introduced, its chief sponsor, Sen. Leahy, said: “Federal oversight would provide confidence that the industry is not engaging in the most egregious forms of anti-competitive conduct, price-fixing, agreements not to pay and market allocations.”

“Insurers may object to being subject to the same antitrust laws as everyone else, but if they are operating in an honest and appropriate way, they should have nothing to fear,” Leahy added.


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