On Wednesday, March 7, 2007, the Senate Judiciary Committee held a hearing entitled "The McCarran-Ferguson Act: Implications of Repealing the Insurers' Antitrust Exemption." At issue was legislation that has been introduced in both Houses of Congress seeking to repeal the federal antitrust exemption granted to insurers in 1945 in the McCarran-Ferguson Act, 15 U.S.C. § 1011 et seq. The Senate bill—titled the Insurance Industry Competition Act of 2007—was introduced by Senate Judiciary Committee Chairman Patrick Leahy (D-VT), joined by Senate Minority Whip Trent Lott (R-MS), and ranking member Sen. Arlen Specter (R-PA). Identical legislation was introduced in the House by Rep. Gene Taylor (D-MS.), Rep. Pete DeFazio (D-OR), Rep. Bobby Jindal (R-LA.), Rep. Walter Jones (R-NC) and others. Testimony was heard from a variety of sources, including Senators Lott and Leahy, the Iowa Commissioner of Insurance, on behalf of the National Association of Insurance Commissioners (NAIC), a New Orleans homeowner, and representatives of the American Insurance Association (AIA) and the Consumer Federation of America (CFA).
One important takeaway from the hearing is the fact that a key member of the Republican leadership is so ardently in favor of repeal, thus potentially foreshadowing a bipartisan repeal effort. Also important was the admission by Mr. J. Robert Hunter, Director of Insurance for CFA, that if the state action doctrine were substituted for McCarran (which is proposed by the bill) there would be antitrust lawsuits challenging activities under just about all the state insurance codes. Mr. Hunter opined that the existing state insurance codes would not meet the state action test.
The McCarran-Ferguson Act currently exempts the "business of insurance" to the extent regulated by the states from federal antitrust laws. The proposed legislation reflects lawmakers' continued scrutiny of the insurance industry in the wake of insurance claims arising out of Hurricane Katrina. In particular, the industry sense is that, for Senator Lott, this is payback legislation for Katrina having little or nothing to do with the merits. By contrast, Senators Leahy and Specter have long-standing views on the application of the antitrust laws that far transcend the Katrina experience. The proposed legislation is highly divisive and has met with a barrage of opposition from all sectors of the industry. Surprisingly, however, Commissioner Voss's testimony implied that the NAIC was ready to loosen (if not abandon) its historic support of McCarran and adopt a position "that is entirely consistent with the goals of" the Leahy bill.
When introducing the bill, Sen. Leahy stated that "[f]ederal oversight would provide confidence that the industry is not engaging in the most egregious forms of anti-competitive anti-competitive conduct - price-fixing, agreements not to pay and market allocations. Insurers may object to being subject to the same antitrust laws as everyone else, but if they are operating in an honest and appropriate way, they should have nothing to fear." Senator Lott, a harsh critic of the insurance industry since his home was lost in Hurricane Katrina, expressed the view that the antitrust exemption for insurers has no rational explanation and should be repealed.
Industry proponents have clarified that the antitrust exemption for insurers is a limited one. Antitrust laws relating to boycott, coercion and intimidation remain applicable to insurers. In addition, the exemption protects small- and medium-sized insurers and allows them to compete against larger companies. The repeal of McCarran-Ferguson could actually lessen insurance competition, diminish efficiency and potentially decrease the availability of coverage, while increasing premiums.
Other insurance industry representatives have opined that any discussion about the repeal of the McCarran-Ferguson Act and the antitrust exemption must coincide with proposals to modernize state insurance regulation. Indeed, current proposals relating to optional federal chartering regulation of insurance could make the proposed Insurance Industry Competition Act moot or, at the least, unnecessary. If legislation proposing optional federal chartering regulation of insurance is passed by Congress, the result would be continued protection for small insurers under McCarran-Ferguson, while the big insurers would be subject to federal regulation without McCarran protection.