The McCarran-Ferguson Act, which has kept insurance regulation in the hands of the states since its passage in 1944, should be repealed, according to New York State Attorney General Eliot Spitzer.

In testimony submitted to the federal Antitrust Modernization Commission, Mr. Spitzer said the law has become outdated and is potentially a hurdle to enforcing antitrust laws.

"The McCarran-Ferguson exemption to the federal antitrust laws for the business of insurance illustrates an industry-specific exemption that is ripe for re-examination and, in our view, repeal," Mr. Spitzer said.

"The exemption has interfered with the ability of public and private enforcers to readily use the full panoply of federal antitrust remedies to correct, deter and obtain compensation for abuses in the insurance sector.

"A uniform federal antitrust standard would facilitate antitrust enforcement and benefit plaintiffs and defendants alike, in contrast to disparate actions, under different laws, that may yield inconsistent results," according to the attorney general.

However, Mr. Spitzer also argued that the repeal of Mccarran-Ferguson should not be the death knell of the state regulatory system. Rather, he said that any repeal should be fashioned to subject insurance companies to federal antitrust laws as well as the state regulator.

"Because state regulation of insurance is complex and reaches far beyond the concerns of antitrust law, state regulation should not be preempted," he said. "By the same token, state regulation should not exempt insurers from the federal antitrust laws. Rather, the state action doctrine, as it is applied generally, should be adequate to deal with the insurance industry as well."

Others offering testimony disagreed. Julie Gackenbach, assistant vice president of government affairs for the Property Casualty Insurers Association of America (PCI), said that the exemption allows for insurers to undertake the special efforts particular to the insurance industry.

"The limited antitrust exemption provided by the McCarran-Ferguson Act has proved essential to property-casualty insurers and their policyholders," Ms. Gackenbach said.

"The existence of this exemption allows companies to exchange critical data regarding losses and other factors, facilitates the development and operation of assigned risk plans, facilitates participation and oversight of state guarantee funds, permits state control over liquidations of insurers, and promotes competition in the marketplace," she added.

Overall, Mr. Spitzer argued that the McCarran-Ferguson Act is an example of a regulation that has been passed by the marketplace, and a call for lawmakers and regulators to keep a closer eye on the regulatory system.

"Experience with McCarran-Ferguson indicates that there is a need to re-examine industry-specific exemptions periodically," he said. "Markets change, in many cases eliminating the need for broad exemptions. McCarran-Ferguson is one example of an exemption that has no apparent business justification and impedes free and open competition in a major sector of the U.S. economy."

Special Reports /

Spitzer: End Insurers Federal Anti-Trust Exemption

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