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THE ISSUE IS…Efforts to change or repeal the antitrust exemptions in the McCarran Ferguson Act.

IT’S IMPORTANT BECAUSE…The McCarran-Ferguson Act, approved by Congress in 1945, entrusts states with the authority and responsibility for the regulation of the business of insurance.1 The McCarran-Ferguson Act does not include a blanket exemption from antitrust laws, but provides a targeted exemption for certain limited insurance activities.2 The exemption is limited to activities that constitute the “business of insurance,” are “regulated by State law,” and do not constitute “an agreement to boycott, coerce or intimidate or an act of boycott, coercion or intimidation.” Like other exemptions from antitrust laws, this exemption is construed narrowly and has been subject to extensive court interpretation over the past 60 years.

Under the regulatory regime established by the McCarran-Ferguson Act, insurers are subject to a vibrant, comprehensive state-level system of regulation and antitrust enforcement. States regulate virtually every aspect of insurance from licensing, to market practices, to financial solvency and all insurance activity is subject to regulatory supervision. In addition every state has an Unfair Trade Practices Act providing authority to investigate, and if appropriate, correct and punish a variety of unfair practices.

The McCarran-Ferguson Act establishes a careful and well working balance between regulation and antitrust enforcement for the state regulated insurance industry and ensures parity with other financial services industries. The existence of the narrow antitrust exemption provided by the McCarran-Ferguson Act promotes competition in the insurance marketplace by allowing companies to exchange critical data regarding losses and other factors, allows development of standardized policy language, facilitates participation and oversight of state guaranty funds, permits state control over liquidations and enables the development and operation of assigned risk plans.

The existence of the McCarran-Ferguson limited antitrust exemption serves to make the industry more competitive, not less. Repeal or limitation of the McCarran-Ferguson limited exemption would reduce competition, increase insurance costs and reduce availability for some high-risk coverages. Specifically changes could imperil the ability of insurers to exchange critical data endangering market participation by smaller insurers and making it more difficult for carriers to enter new markets. Threats to standardization of policy language would make it more difficult for consumers to compare policies and prices and barriers to operation of assigned risk plans and guaranty funds would undermine the functioning of insurance markets.

The McCarran-Ferguson Act has worked well for decades to maintain a vigorous and competitive marketplace for America’s consumers and should be preserved.

On Feb. 15, Senate Judiciary Committee Chairman Patrick Leahy (D-Vt.), Ranking Member Arlen Specter (R-Penn.), Majority Leader Harry Reid (D-Nev.), Minority Leader Trent Lott (R-Miss.), and Mary Landrieu, D-La.), introduced S. 618, the Insurance Industry Competition Act of 2007. The legislation would amend the 62-year McCarran-Ferguson Act to permit the Federal Trade Commission (FTC) and the Department of Justice (DOJ) to enforce federal antitrust laws and regulations. The legislation would leave it to the discretion of the FTC and the DOJ whether to issue joint statements of their antitrust enforcement policies regarding joint activities in the business of insurance, replacing more than a half century of the creation and interpretation of such policies by the states.

Identical legislation (H.R. 1081) was introduced in the House of Representatives by Representatives Peter DeFazio (D-Ore.), Gene Taylor (D-Miss.), Bobby Jindal (R-La.), Charlie Melancon (D-La.), Rodney Alexander (R-La.) and Walter B. Jones (R-N.C.).

On April 3, after three years of hearings, meetings and evaluations of public comments regarding antitrust laws (including McCarran-Ferguson), the Antitrust Modernization Commission (AMC) issued its Report and Recommendations. Although the report did not call for an outright repeal, it did recommend that McCarran-Ferguson should be further reviewed by the Congress.

According to the report, "Antitrust exemptions can harm the U.S. economy and, in the long run, reduce the competitiveness of the industries that have sought antitrust exemptions. Statutory exemptions from the antitrust laws undermine, rather than upgrade, the competitiveness and efficiency of the U.S. economy."

Four of the panel's 12 commissioners went even further, flatly calling for a repeal of the McCarran-Ferguson Act. McCarran-Ferguson is among four antitrust exemptions that "have outlived any utility they may have had and should be repealed," said commission member Jonathan M. Jacobson, who was joined by commissioners Debra Valentine and John L.Warden.

A fourth commissioner John H. Shenefield, in a separate statement, said McCarran-Ferguson is among "the most ill-considered and egregious examples" of antitrust exemption, and its repeal "should not be delayed."

NAMIC POSITION…NAMIC opposes any changes to or repeal of the existing antitrust exemptions afforded under the McCarran-Ferguson Act. The Congress should be wary of the unintended consequences of changes to the current limited antitrust exemption. Any change that precludes, restricts or even merely discourages the production and exchange of advisory loss costs and supplementary rating information could place smaller and regional firms at a distinct disadvantage, increase consumer costs, reduce consumer choice and seriously undermine competition. There is no credible evidence that the cost, availability or quality of insurance products would be enhanced if the McCarran-Ferguson limited antitrust exemptions were repealed or modified. Any change in the existing antitrust regime and repeal or modification to the current limitations could decrease market stability, reduce affordability and availability of products, stifle innovation and expansion, diminish industry efficiency and ultimately, inhibit rather than increase competition in the insurance marketplace.

1 McCarran-Ferguson Act, 15 USC 1011, et seq., 1945.

2 The Sherman Act (prohibits restraint of trade and monopolistic practices), the Clayton Act (prohibits anti-competitive practices), the Robinson-Patman Act (an amendment to the Clayton Act prohibits price discrimination among customers who compete against each other), and the Federal Trade Commission Act (prohibits unfair methods of competition and deceptive practices)

Posted: Thursday, February 15, 2007 12:00:00 AM. Modified: Tuesday, April 17, 2007 4:05:27 PM.

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