WASHINGTON–Two senators from states where insurers' handling of hurricane claims has been controversial testified today that part of the problem is the companies' antitrust exemption.

Sen. Mary Landrieu, D-La., and Sen. Trent Lott, R-Miss., the Senate minority whip, made their comments during a Senate Judiciary Committee hearing on “The McCarran-Ferguson Act: Implications of Repealing the Insurers' Antitrust Exemption.”

The committee is considering a measure to eliminate the exemption.

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

Current insurance industry behavior in handling claims and renewals in Louisiana in the wake of Hurricane Katrina has created a “crisis” for the state's economy, she said.

Sen. Lott called the industry's behavior in handling claims from the hurricane “reprehensible,” and said a key factor was that the McCarran-Ferguson Act has allowed insurers “for more than six decades” to operate “largely beyond the reach of federal competition laws.”

Sen. Lott has sued his own insurer as the result of his insurance claim for hurricane damage to his home.

The hearing he and Sen. Landrieu spoke at was convened by sponsors of S. 618, “The Insurance Industry Competition Act of 2007.”

One of the measure's sponsors, Judiciary Committee Chairman Sen. Patrick Leahy, D-Vermont, commented: “The bottom line is right now we do not know what anticompetitive acts insurers may be engaging in because the antitrust immunity insurers enjoy acts as a curtain that hides their activity from federal antitrust authorities.”

But an insurance industry representative defended the 1945 law as good for consumers and the markets–and comparable to the same “legislative balance” enjoyed by the banking and securities industries.

In both prepared testimony and in answer to questions, Marc Racicot, president of the American Insurance Association and former Montana governor, defended the industry and made clear it is united in opposition to the legislation.

Mr. Racicot, answering a question from committee member Sen. Orrin Hatch, R-Utah, said among the nation's 5,000 property-casualty insurers, “I don't think you'll find one of them who believes passage of this bill is a good idea for consumers, or for states.”

“And the reason is that they know their business is being conducted in the light of day and is in the best interests of consumers,” he added.

“The more competition, the better,” he said, noting that the interests of Sen. Leahy, the committee and the p-c industry coincide under current law. “I would argue that there is no financial services industry in the country more heavily regulated than the insurance industry.”

And after the hearing, both Sens. Landrieu and Lott maintained there is “growing support” for the legislation in the Congress in the wake of the hurricanes that devastated the Gulf Coast.

But backing for the bill in the Judiciary Committee appeared lacking, based on attendance at the hearing, with only three of the panel's 19 members on hand for today's proceedings. Those present included S. 618 cosponsor Sen. Arlen Specter, R-Pa., ranking minority member of the Judiciary Committee, who joined Sen. Leahy and Sen. Orrin Hatch, R-Utah.

Sen. Chris Dodd, D-Conn., chairman of the Banking Committee, has declined repeated requests to comment on the legislation and state whether his panel will take it up. Sen. Landrieu said she would push for more hearings on the issue, including asking the Senate Banking Committee to get involved.

In her written testimony, Sen. Landrieu included a statement asking, “Will repeal of McCarran-Ferguson solve the problems we face in the Gulf? I am not sure that I know the answer to that question.”

But, she added, “if it takes the threat of repeal to get Congress, the states and the industry to sit down and discuss a solution, I am all for it. We should also consider other proposals and solutions to the problem.”

In other testimony, J. Robert Hunter, insurance director for the Consumer Federation of America, voiced “wholehearted” support for S. 618.

He said he spoke on behalf of CFA and other consumer groups. The bill, he said, “which repeals the antitrust exemption enjoyed by the insurance industry and unleashes the Federal Trade Commission to protect insurance consumers, is critically needed to overcome the anticompetitive practices of this giant and important industry.”

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

Susan Voss, Iowa insurance commissioner, asked that Congress “carefully evaluate the unintended consequences from outright repeal of the exemption.”

Commissioner Voss, who testified on behalf of the National Association of Insurance Commissioners, said repeal “risks transforming certain insurance practices that help consumers, promote competitiveness and strengthen markets, into actionable violations of federal antitrust law.”

She suggested that Congress rather than outright repeal consider targeted alternatives, including amendments to strengthen existing criminal and civil actions and remedies that would lower the shield behind which bad actors hide, but still preserve insurance market stability.

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

She also noted the NAIC opposed coupling McCarran-Ferguson repeal with creation of an optional federal charter for insurers. “While some of the industry's largest players advocate for deregulation through a so-called federal charter and would encourage coupling the two issues, the NAIC supports reconsideration of the limited federal antitrust exemption as a separate and distinct policy matter.”

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