Originally, the McCarran-Ferguson Act was enacted in 1945 to permit the states to continue regulating the insurance business. Under the Act, the business of insurance is exempt from some federal antitrust statutes to the extent that it is regulated by the states.
Marc Racicot, president of the American Insurance Association (AIA), was the lead witness. Racicot said: "We believe that congressional review of the state insurance regulatory system is long overdue, including a frank and honest examination of the economic utility of government price controls and the regulation of insurance policy forms. In addition, we note that there is a growing understanding in Congress about the very real problems associated with the current state-based regulatory regime - and that steps must be taken to improve and modernize the way insurance is regulated."
The AIA supports the National Insurance Act of 2006, S. 2509, introduced by Senators John Sununu, R-N.H., and Tim Johnson, D-S.D.
Robert Hunter, insurance director, Consumer Federation of America (CFA), told the committee members: "CFA urges the Senate to repeal the antiquated, unnecessary and harmful insurance antitrust exemption for the benefit of the nation's consumers. We estimate that elimination of the exemption will save consumers at least 10 percent of the current premiums, or about $45 billion a year."
"The Automotive Service Association supports the repeal or modification of the McCarran-Ferguson Act," said Bob Redding, ASA's Washington, D.C., representative. "We appreciate Chairman Specter holding a long overdue hearing on the issue. Although no legislative markup is scheduled in the Senate to date, clearly there is significant interest in the House and Senate for reform."
Not so fast
Speaking on behalf of the National Association of Insurance Commissioners (NAIC), Illinois Director of Insurance Michael McRaith told the U.S. Senate Committee on the Judiciary that the McCarran-Ferguson antitrust exemption, in concert with effective state insurance supervision, fosters a vibrant, competitive insurance marketplace, and cautioned against its repeal.
"The 'business of insurance' exemption in McCarran-Ferguson authorizes insurers to engage in supervised, but cooperative, activities that promote competition, enhance consumer choice, and help maintain marketplace integrity," McRaith said to the senate committee. "Its repeal would not improve the affordability, reliability or availability of insurance to consumers, but rather inject uncertainty, reduce stability and predictability, deter capital infusions, and ultimately harm competition and raise costs."
McRaith emphasized state insurance officials' core priority of protecting consumers, and highlighted the unique characteristics of insurance, which make analogies to other financial sector products inherently misleading. Additionally, he shared insurance commissioners' concerns regarding recently introduced legislation to establish an untested, industry-funded federal insurance regulator and allow insurance companies to opt out of "cradle-to-grave" state consumer protection.
"The creation of a massive new federal bureaucracy to benefit a small segment of the largest carriers in the insurance industry - at the expense of consumers - is an idea that this Committee and the U.S. Congress should unequivocally reject," McRaith said.
Those present to testify at the hearing included:
• The Honorable Marc Racicot, former governor of Montana, president, American Insurance Institute, Washington, D.C.
• Elinor R. Hoffmann, assistant attorney general, Antitrust Bureau, Office of the Attorney General for the State of New York, New York, N.Y.
• Michael McRaith, Illinois director of insurance; chair, Broker Activities Task Force, National Association of Insurance Commissioners, Chicago.
• Robert Hunter, insurance director, Consumer Federation of American, Washington, D.C.
• Kevin Thompson, senior vice president, Insurance Services Office, Jersey City, N.J.
• Donald C. Klawiter, chair, Section of Antitrust Law, American Bar Association, Washington, D.C.
To view the testimony from this hearing, please visit ASA's legislative Web site, www.TakingTheHill.com.