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NAIC And ACLI Tangle On OFC And McCarran Repeal

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The National Association of Insurance Commissioners implored Congress last week to consider amendments to the antitrust exemption insurers have under the McCarran-Ferguson Act and initiatives to create an optional federal charter as “separate and distinct” policy matters.

But the American Council of Life Insurers later issued a statement opposing the NAIC position, saying the 2 issues should be addressed in tandem.

The NAIC’s position was voiced in testimony before the Senate Judiciary Committee by Susan Voss, Iowa insurance commissioner.

She appeared on a panel of citizens, consumer advocates and a representative of the property-casualty insurance industry discussing “The McCarran-Ferguson Act: Implications of Repealing the Insurers’ Antitrust Exemption.”

In her testimony, Voss said the NAIC opposed coupling McCarran-Ferguson repeal with creation of an optional federal charter.

“While some of the industry’s largest players advocate for deregulation through a so-called federal charter and would encourage coupling the 2 issues, the NAIC supports reconsideration of the limited federal antitrust exemption as a separate and distinct policy matter.”

But in a statement issued after the hearing, Jack Dolan, an ACLI spokesman, said, “Repealing McCarran-Ferguson in isolation, without regard to comprehensive regulatory reform in the form of an optional federal charter, would make an already inefficient regulatory system far worse.”

He added that the ACLI “supports optional federal chartering because the current state regulatory system is cumbersome, inconsistent, unnecessarily complicated and unable to adapt quickly to changes in the marketplace.”

But the movement from exclusive state regulation to an optional federal system must be accomplished in an orderly way, Dolan said. “Repeal of McCarran-Ferguson outside the context of optional federal chartering would have the opposite effect.”

The hearing was convened by Sens. Patrick Leahy, D-Vt., and Arlen Specter, R-Pa., the chairman and ranking minority member of the Judiciary panel.

They are among the sponsors of S. 618, “The Insurance Industry Competition Act of 2007,” which seeks to subject the industry to antitrust scrutiny from both the Department of Justice and the Federal Trade Commission.

The bill would repeal the industry’s antitrust exemption under McCarran-Ferguson as well as a provision of the FTC Act passed in 1980 that bars the agency from preparing reports and regulating the industry without specific authorization by Congress.

For example, the FTC is currently preparing a report on whether credit scoring is an appropriate criterion for use in the underwriting of insurance policies, based on language inserted into a bill several years ago by Rep. Luis Gutierrez, D-Ill.

The life insurance was not under scrutiny at the hearing. S. 618 was prompted by the uproar created by the p-c industry’s handling of claims from Hurricanes Katrina and Rita in 2005 and by its effort to reduce its risk from Gulf Coast hurricanes by raising rates heavily to residents there, or, in some cases, ceasing to offer homeowner’s insurance to residents in coastal areas.

Sen. Trent Lott, R-Miss., the Senate minority whip, called the industry’s behavior in handling claims from the hurricane “reprehensible.”

He contended that a key reason behind the industry’s behavior was that the McCarran-Ferguson Act has allowed insurers “for more than 6 decades” to operate “largely beyond the reach of federal competition laws.”

Sen. Leahy added, “The bottom line is right now we do not know what anticompetitive acts insurers may be engaging in because the antitrust immunity insurers enjoy acts as a curtain that hides their activity from federal antitrust authorities.”

But an insurance industry representative defended the 1945 law as good for consumers and the markets–and comparable to the same “legislative balance” enjoyed by the banking and securities industries.

In both prepared testimony and in answer to questions, Marc Racicot, president of the American Insurance Association, defended the industry and made clear its united opposition to the legislation.

Noting that there are 5,000 property-casualty insurance companies providing coverage in the U.S., Racicot answered a question from Sen. Orrin Hatch, R-Utah, a member of the committee, by saying, “I don’t think you’ll find one of them who believes passage of this bill is a good idea for consumers, or for states.”

“And the reason is that they know their business is being ‘conducted in the light of day’ and is in the best interests of consumers,” Gov. Racicot said.

“The more competition, the better,” he said, noting that the interests of Sen. Leahy, the committee and the p-c industry coincide under current law, adding, “I would argue that there is no financial services industry in the country more heavily regulated than the insurance industry.”


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