Antitrust commission calls for insurer exemption review

WASHINGTON—A bipartisan panel's recommendation that Congress should rarely, if ever, grant industries immunity from federal antitrust laws could aid lawmakers who wish to repeal the McCarran-Ferguson Act.

That's so even though the majority of the Antitrust Modernization Commission's 12 members stopped short of calling for repeal of the limited antitrust exemption granted to insurers by the act. Instead, the group in its April 3 report called for congressional review of insurers' exemption as well as exemptions granted to other industries, and recommended that exemptions be granted only under very limited circumstances (see box).

Four members advocated repealing the McCarran-Ferguson exemption.

The report came only weeks after lawmakers, displeased with some insurers' claims-handling practices in the wake of Hurricane Katrina, introduced legislation in both houses of Congress that would repeal insurers' limited antitrust immunity.

"It certainly can be used by those who would like to repeal the exemption," said Bob Detlefsen, vp-public policy for the National Assn. of Mutual Insurance Cos. in Indianapolis. "Nothing in the report offers support for those of us who would prefer that Congress not tinker with the McCarran Ferguson Act."

"I think there are some problems with the report," he said. "It says that insurers really have nothing to fear from antitrust laws." The report said that issues such as data-sharing among insurers would be assessed by "the courts under a rule of reason analysis that would fully consider the potential pro-competitive effects of such conduct and condemn it only if, on balance, it was anticompetitive."

"But it assumes that courts applying this rule of reason analysis will actually make reasonable decisions," Mr. Detlefsen said. "It also discounts the impact that costly antitrust litigation would have on companies and consumers. It ignores the extent to which the threat of litigation would inhibit insurers from acting cooperatively, even if they thought eventually their actions would survive antitrust scrutiny by the courts."

"I think taken in a different environment, it would not raise much concern," said Ben McKay, senior vp in the Property Casualty Insurers Assn. of America's Washington office. "It basically tells Congress once again to look at antitrust exemptions, which they've done in terms of McCarran-Ferguson in every decade since the 1960s. For a report to suggest that they do it once again would not normally raise many concerns--we would expect the same results, which is leave it alone, the industry works."

But "in the current post-Katrina environment, we worry that repeal is being pushed as a cure for other problems," Mr. McKay said. "It's a little bit more fuel to the tinderbox that we have to worry is going to ignite."

"The report contains some good news," said a spokesman for the American Insurance Assn. in Washington. "It does not specifically call for repeal of the McCarran-Ferguson antitrust exemption." He also noted that "one of the report's bedrock conclusions is that free market principles are at the foundation of the U.S. economy and that neither the government nor private actors should undermine free market competition."

But he added that "the big deal is in its discussion of the McCarran-Ferguson exemption, the report fails to make the connection between government regulation and antitrust enforcement. With property/casualty insurers, states have imposed government price controls instead of allowing the free market to determine the range of insurance prices that competitors offer. This regulatory system developed out of McCarran-Ferguson. The report seems to condemn this sort of government economic regulation, but it fails to acknowledge that this is applied to property/casualty insurers."

The 540-page commission report is available at www.amc.gov.