GRAPEVINE, Texas (Sept. 19, 2007) – Though touted by backers as an effort to improve property insurance availability, affordability, and claims handling in disaster-prone regions, eliminating the antitrust exemption afforded insurers under the McCarran-Ferguson Act would have the opposite effect, according to a major public policy paper released here today by the National Association of Mutual Insurance Companies (NAMIC).
The Assault on the McCarran-Ferguson Act and the Politics of Insurance in the Post-Katrina Era, by Lawrence S. Powell, Ph.D., examines the factors influencing the current political climate surrounding insurance and the potential effects of legislation to repeal the McCarran-Ferguson antitrust exemption for insurers. The report also explains how the exemption promotes competition and reduces costs to consumers in property insurance markets, and offers specific recommendations that could increase the affordability and availability of property insurance, particularly in coastal regions.
Powell’s report reaches the following conclusions:
“If policymakers repeal McCarran, consumers will suffer substantial negative consequences resulting from a combination of weakened competition in the insurance industry and a myriad of regulatory, legal and operational problems generating costs that consumers must ultimately bear,” the report says. It further notes that small and new insurers would be especially harmed by such a move, because they “have less in-house data to analyze than do large insurers. … If these companies were forced to exit insurance markets due to increased costs of estimating losses, consumers would have fewer choices and markets would not be as competitive.”
Powell points to free-market reforms as key to increasing availability and affordability.
“Only recently have some states begun to address the underlying problems leading to affordability and availability issues,” the report says. “These include the factors driving the cost of losses such as coastal development, nonexistent or poorly enforced building codes and factors hampering the speed with which insurers can respond to major events such as rate regulation and underwriting restrictions.”
The report says certain reforms would specifically help. “They include enhancing freedom and innovation in insurance ratemaking and risk-based underwriting practices, making cross-subsidies transparent and explicit, and spurring regulatory competition among states to improve states’ regulatory environments.”
Powell is the Whitbeck-Beyer chair of Insurance and Financial Services at the University of Arkansas-Little Rock. He holds a Ph.D. in risk management and insurance from the University of Georgia.
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