Swept Away?

An End to Antitrust Exemption?

This has led to the conditions ripe for more regulation of the industry, with lawsuits filed amid allegations of criminal misconduct. But the effects may go farther than that. Lawmakers are considering bills introduced in both the House (H.R. 1081) and the Senate (S. 618) that would repeal the McCarran-Ferguson Act, which offers the insurance industry exemption from federal antitrust oversight as long as they are regulated at the state level. This has been beneficial in the past, according to Claire Wilkinson, VP at the Insurance Information Institute (III), because it “allows insurers to pull historic loss information and charge an accurate price for their product. Buyers of insurance everywhere benefit by getting premiums in line with their individual risk.”

While many coastal homeowners might dispute this statement, Wilkinson adds that a repeal of McCarran-Ferguson “would likely reduce competition, increase the cost of insurance, and reduce availability for some coverages–high-risk coverage, probably.” She adds that McCarren-Ferguson is “designed to ensure the preeminence of state regulation,” rather than allowing the insurance industry freedom from federal antitrust laws. Larger insurers, she says, can enter new markets in new states with pricing appropriate to the market through use of the pooled data available to them. Smaller insurers benefit also, she says, because they don’t have the resources “to accurately price coverage.” This would mean that without access to pooled data, insurers would be less able to compete effectively and be “more prone to insolvency.”

Dueling Legislation

Wilkinson also points out that the Act “avowed the use of standard policy forms across the industry,” which “has significant benefits for insurance buyers” by allowing them to comparison shop on a more level field.” But legislators, concerned about constituents who cannot find or afford insurance or who cannot rebuild after the disaster, are seeking ways to exercise tighter control over insurers. If these bills become law, however, insurers say there will be consequences throughout the insurance industry–not just for homeowner’s insurance.

One industry fear is that the Federal Trade Commission will begin looking further afield than property and casualty insurers, perhaps considering life insurance or other types of insurance. One provision would allow the FTC to conduct insurance industry studies. In 1979 the FTC had released such a study on the life insurance industry that was very critical of its practices.

The industry isn’t sitting idly by, however. It has its own plan for legislation, including the formation of a federal backstop that will require the government to step in if losses become too great.