WASHINGTON (April 4, 2007) — A new report calling for a review of the McCarran-Ferguson Act is troubling, said the National Association of Mutual Insurance Companies (NAMIC). While the report — by the Antitrust Modernization Commission — does not recommend repealing the antitrust exemption provided to insurance companies under the Act, its suggestion for Congress to carefully review it and other exemptions could ultimately lead to higher costs for consumers.
“Many of the statements in the report indicate a lack of understanding of the business of insurance,” said Carl Parks, NAMIC’s senior vice president for federal affairs. “There are several statements that incorrectly characterize the McCarran-Ferguson antitrust exemption.”
For example, the commissioners contend that McCarran-Ferguson and other exemptions lead to higher prices, reduced output, lower quality, reduced innovation, and less competition. They also argue that a decision to provide an exemption is a decision to sacrifice competition and consumer welfare.
“The exact opposite is true in the case of the nation’s 5,000 insurers,” Parks said. “It is the presence of the exemption that has fostered a vibrant and competitive marketplace affording consumers greater choice, lower prices, higher quality and more varied products and increased innovation, while ensuring a sound and stable marketplace.”
The report incorrectly contends that immunities and exemptions benefit relatively small special interest groups and spread their costs to the broad consuming public. Actually, McCarran-Ferguson benefits all insurance consumers and serves to safeguard consumer welfare, Parks said.
NAMIC found other problems with the report. The commissioners state that solvency should not serve as justification for antitrust exemptions. In fact, solvency is an integral component of consumer welfare and protection in the property/casualty context, Parks explained.
The report also discounts fears of litigation and legal uncertainty.
“Essentially, the report says that insurers have nothing to fear from being subject to the antitrust laws as long as the cooperative behavior in which they’re engaged has pro-competitive effects,” said Robert Detlefsen, NAMIC’s vice president of public policy. “The report is unduly confident that courts with little or no experience adjudicating insurance issues would be able to distinguish clearly between pro-competitive and anti-competitive practices. We are not nearly as optimistic about this prospect as is the commission.”
Detlefsen further said the report does not address the negative consequences for insurers and consumers that would result from the legal uncertainty and expense of private antitrust litigation to settle such questions if the exemption were to be repealed.
“The main problem with the report is that (a) it assumes that courts applying a rule of reason analysis to alleged antitrust violations by insurers will actually make reasonable decisions; (b) it discounts the impact that costly and protracted antitrust litigation would have on companies and consumers; and (c) it ignores the extent to which the threat of litigation would inhibit insurers from acting cooperatively even if they thought that eventually their actions would survive antitrust scrutiny by the courts,” Detlefsen continued.
Ironically, Commissioner Jonathan M. Jacobson, who wrote a separate statement calling for the repeal of the insurance antitrust exemption as well as exemptions applying to three other industries, also opined that “the Commission would have better served the country through a more focused review of these four [exemptions] than by relying purely on the generalist overview reflected in our official recommendations.”
“We couldn’t agree more,” said Detlefsen. “Had the Commission more carefully examined the implications of repealing the limited insurance antitrust exemption, it’s likely that Commissioner Jacobson would have reached a different conclusion.”
NAMIC opposes any changes to the McCarran-Ferguson Act and will continue to work with members of Congress to inform them on the effects of the limited antitrust exemption on the insurance industry and America’s insurance consumers.
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Posted: Wednesday, April 04, 2007 12:00:00 AM. Modified: Wednesday, April 04, 2007 3:49:47 PM.
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