The insurance industry should be stripped of its longtimefederal antitrust protection because the exemption creates anenvironment in which carriers can abuse policyholders in individualstates, as was demonstrated by mishandling of recent hurricaneclaims, two senators from storm-ravaged areas testified lastweek.

Sen. Mary Landrieu, D-La., and Sen. Trent Lott, R-Miss., theSenate minority whip, made their comments during a Senate JudiciaryCommittee hearing on “The McCarran-Ferguson Act: Implications ofRepealing the Insurers' Antitrust Exemption.” The committee isconsidering S.618, “The Insurance Industry Competition Act of2007,” which would revoke the exemption.

Sen. Landrieu told the panel something must be done to mitigate“the deep threat the current insurance environment poses to thesuccessful recovery” of Louisiana from Hurricanes Katrina andRita.

Insurance industry behavior in handling claims and renewals inLouisiana in the wake of Hurricane Katrina has created a “crisis”for the state's economy, she added.

Sen. Lott called the industry's Katrina claims-handling“reprehensible,” and said a key factor was that theMcCarran-Ferguson Act has allowed insurers “for more than sixdecades” to operate “largely beyond the reach of federalcompetition laws.”

Sen. Lott has sued his own insurer–State Farm–as the result ofhis insurance claim for hurricane damage to his home.

“The bottom line is right now we do not know whatanticompetitive acts insurers may be engaging in because theantitrust immunity insurers enjoy acts as a curtain that hidestheir activity from federal antitrust authorities,” said JudiciaryCommittee Chairman Sen. Patrick Leahy, D-Vt., one of S.618'ssponsors.

But an insurance industry representative defended the 1945McCarran-Ferguson Act's antitrust exemption as good for consumersand the market–and comparable to the same “legislative balance”enjoyed by the banking and securities industries.

In both prepared testimony and in response to questions, MarcRacicot, president of the American Insurance Association and formerMontana governor, defended the industry and made clear it is unitedin opposing S.618.

Mr. Racicot, answering a question from committee member Sen.Orrin Hatch, R-Utah, said that among the nation's 5,000property-casualty insurers, “I don't think you'll find one of themwho believes passage of this bill is a good idea for consumers, orfor states, and the reason is that they know their business isbeing conducted in the light of day and is in the best interests ofconsumers.”

“The more competition, the better,” he added, noting that theinterests of Sen. Leahy, the committee and the p-c industrycoincide under current law. “I would argue that there is nofinancial services industry in the country more heavily regulatedthan the insurance industry.”

After the hearing, both Sens. Landrieu and Lott maintained thereis “growing support” for S.618 in the wake of the hurricanes thatdevastated the Gulf Coast.

However, backing for the bill in the Judiciary Committeeappeared lacking, based on attendance at the hearing, with onlythree of the panel's 19 members on hand for theproceedings–including S.618 co-sponsor Sen. Arlen Specter, R-Pa.,the committee's ranking minority member.

Sen. Chris Dodd, D-Conn., who chairs the Banking Committee, hasdeclined repeated requests to comment on the legislation and statewhether his panel will take it up. Sen. Landrieu said she wouldpush for more hearings on the issue, including asking the SenateBanking Committee to get involved.

Sen. Landrieu also has authority to call hearings on the issueherself. She now heads the Subcommittee on Disaster Recovery, partof the Senate Homeland Security and Governmental AffairsCommittee.

In her written testimony, Sen. Landrieu included a statementasking: “Will repeal of McCarran-Ferguson solve the problems weface in the Gulf? I am not sure that I know the answer to thatquestion.”

However, she added, “if it takes the threat of repeal to getCongress, the states and the industry to sit down and discuss asolution, I am all for it. We should also consider other proposalsand solutions to the problem.”

In other testimony, J. Robert Hunter, insurance director for theConsumer Federation of America, voiced “wholehearted” support forS.618. He said he spoke on behalf of CFA and other consumergroups.

The bill, he said, “which repeals the antitrust exemptionenjoyed by the insurance industry and unleashes the Federal TradeCommission to protect insurance consumers, is critically needed toovercome the anticompetitive practices of this giant and importantindustry.”

“It is high time that insurers played by the same rules ofcompetition as virtually all other commercial enterprises operatingin America's economy,” he added.

Iowa Insurance Commissioner Susan Voss asked that Congress“carefully evaluate the unintended consequences from outrightrepeal of the exemption.”

Ms. Voss, who testified on behalf of the National Association ofInsurance Commissioners, said repeal “risks transforming certaininsurance practices that help consumers, promote competitivenessand strengthen markets into actionable violations of federalantitrust law.”

She suggested that Congress, rather than outright repeal,consider targeted alternatives–including amendments to strengthenexisting criminal and civil actions, and remedies that would lowerthe shield behind which bad actors hide, but still preserveinsurance market stability.

“The alleged bad behaviors driving congressional interest are,for the most part, not immune from federal investigation andprosecution under the act's limited antitrust exemption,” shesaid.

Ms. Voss also noted that the NAIC opposed couplingMcCarran-Ferguson repeal with creation of an optional federalcharter for insurers. “While some of the industry's largest playersadvocate for deregulation through a so-called federal charter andwould encourage coupling the two issues, the NAIC supportsreconsideration of the limited federal antitrust exemption as aseparate and distinct policy matter,” she said.

In comments to its members after the hearing obtained byNational Underwriter, the Financial Services Roundtable said that“perhaps the most intriguing part of the hearing was the apparentshift in position by the NAIC.”

The FSR document noted that last June, Illinois CommissionerMichael McRaith testified in opposition to McCarran repeal, inessence saying state regulators and attorneys general were on thejob and not in need of federal assistance.

“However, this morning Iowa Commissioner Susan Voss struck a farmore conciliatory tone, stating that the NAIC agreed with the'underlying intent' of the language and would welcome federal'collaboration' in dealing with the 'bad actors,'” the FSR documentsaid. The FSR now has a number of insurance industry members and isa strong advocate of an optional federal charter.

“The bottom line is right now we do not know whatanticompetitive acts insurers may be engaging in because theantitrust immunity insurers enjoy acts as a curtain that hidestheir activity from federal antitrust authorities.”

Sen. Patrick Leahy, D-Vt.

Chair, Senate Judiciary Committee