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Congress set to consider insurer antitrust repeal

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WASHINGTON—Possible repeal of the McCarran-Ferguson Act's limited exemption from federal antitrust laws for insurers is unlikely to have any dramatic immediate impact on risk managers, say observers.

But some observers hold that a repeal could have an indirect impact, and could complicate the debate over whether insurers and producers should be allowed to choose to be regulated under a possible federal charter rather than state charters. The McCarran-Ferguson Act does not provide for federal charters, making states the primary regulators of insurance.

A bipartisan group of lawmakers introduced bills in both the House and the Senate earlier this month that would repeal insurers' limited antitrust exemptions (BI, Feb. 19). The Insurance Industry Competition Act would retain state regulation, but give the U.S. Justice Department and the Federal Trade Commission authority to apply federal antitrust laws to insurers. The lawmakers made clear that the legislation came in response to insurer practices following Hurricane Katrina and the other major storms of the 2005 hurricane season.

The Risk & Insurance Management Society Inc. "has never taken a formal position on it," said Terry Fleming, a member of New York-based RIMS board of directors.

"We think it deals primarily with personal lines. We feel it's in response to some notion of price fixing after Hurricanes Katrina and Rita, so it's being pushed mostly by" lawmakers from the Gulf Coast, said Mr. Fleming, who also is director-division of risk management for Montgomery County, Md., in Rockville.

"Typically risk managers will negotiate directly with the insurers," he said. "This lessens the chance of price fixing."

He added that RIMS, which supports an optional federal charter, does not see the bills impacting the OFC "at this point."

Julie Gackenbach, principal at the Washington-based Confrere Strategies who also serves as a consultant to the National Assn. of Mutual Insurance Cos., said repeal of the antitrust protection could have a broad impact.

"The bill as written would have the potential to reduce availability and increase costs across all lines of insurance," Ms. Gackenbach said. "What's going to happen is that the restrictions on the ability to exchange data and possible restrictions on the ability of companies to work together on other joint efforts could reduce the availability of coverage for large risks and could preclude insurers moving into additional lines."

The exemption is quite limited, pointed out Claire Wilkinson, a vp at the Insurance Information Institute in New York.

McCarran-Ferguson was designed to ensure "the pre-eminence of state regulation, rather than to free insurance companies from federal antitrust laws. It has a very limited antitrust exemption," Ms. Wilkinson said.

"Repeal would likely reduce competition," she added. "Generally the feeling is that it would impact smaller insurers disproportionately."

Repeal could complicate the OFC debate, said Joel Wood, senior vp at the Washington-based Council of Insurance Agents & Brokers, in an e-mail interview.

That's because "most legislators link McCarran and OFC into the same debate about state vs. federal. Some of this is rooted in the old industry orthodoxy about the sanctity of McCarran. I'm not suggesting the proposed bill wouldn't be disruptive, but it really isn't tantamount to the punishment some of its authors intend. And perversely, it could help educate members on the complexity and range of regulatory issues that can and should be considered," Mr. Wood wrote.

Ben McKay, senior vp in the Washington office of the Property Casualty Insurers Assn. of America, noted that the repeal bill "adds federal regulation to anything that can be considered 'unfair competition,' but it fails to define 'unfair competition,' so it could mean anything." That would represent the "worst possible OFC" for OFC supporters, he said. "You get all the regulation and none of the benefits."

Repeal "could mean a lot" for commercial buyers because, without McCarran-Ferguson, "you could see costs rise and competition diminish," Mr. McKay said.

Any repeal would have to be tied to modernizing insurance regulation overall, said a spokesman for the American Insurance Assn. in Washington.

"Repealing McCarran-Ferguson without also addressing the need to modernize insurance regulation could set up a situation where legitimate state-regulated data collection could be subjected to litigation," the spokesman said. "That in turn could create chaos. Insurers are mandated by states to provide information for such things as workers compensation, for example, and repealing McCarran could raise the possibility of putting insurers in a position of complying with state regulation but being challenged for violating federal antitrust laws."