Will Congress strip the insurance industry of its cherished antitrust exemption to punish carriers for allegedly cheating homeowners on Hurricane Katrina claims? And if they do pull the rug out from under the industry, what difference would it make? In fact, wouldn't such a hasty overreaction do more harm than good? Those were just a few of the critical questions haunting industry lobbyists as they were dragged into the harsh glare of the Capitol Hill spotlight earlier this week.

This past Wednesday, the Senate Judiciary Committee held a hearing on The McCarran-Ferguson Act: Implications of Repealing the Insurers Antitrust Exemption. The point was to consider the potential ramifications of a bill, S.618, The Insurance Industry Competition Act of 2007, that would repeal the industry's limited federal antitrust immunity under the 1945 McCarran-Ferguson Act.

The bill's name, though not meant to be ironic, is a hoot, since subjecting insurers to federal antitrust laws would likely mean an end to the sharing of data and use of common policy forms–two key elements in keeping the market competitive, policies simpler to understand and prices down for consumers.

Will such practical considerations sway lawmakers into behaving rationally and keeping the valuable exemption intact when they are on the warpath over a relatively small number of disputed Katrina claims? That's the billion-dollar question.

As reported by our Washington Editor, Dave Postal (click here for the full news story), Sen. Mary Landrieu, D-La., pleaded with the Judiciary Committee to do something to counter what she characterized as the deep threat the current insurance environment poses to the successful recovery of Louisiana from Hurricanes Katrina and Rita.

Senate Minority Whip Trent Lott, R-Miss.–who sued State Farm to recoup alleged wind damage to his home in Katrina after collecting on his federal flood policy–said the industrys claims-handling in the monster storm was reprehensible, charging that one big reason why insurers have gotten away with allegedly bad behavior is that McCarran-Ferguson has allowed the industry for more than six decades [to be run] largely beyond the reach of federal competition laws.

Fine. Let's say for the sake of argument that Congress, in a fit of pique, repeals the antitrust exemption and turns the dogs of the Federal Trade Commission and the Justice Department loose on carriers. Will that change the circumstances that led up to the flood versus wind claims disputes in the Gulf States? Frankly, even those pushing the legislation don't know.

In her written testimony, Sen. Landrieu was honest enough to admit her ignorance, and reveal that she hopes to spur an examination with this bill that will get to the bottom of the problem. 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, she wrote. “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.

Senate Judiciary Committee Chairman Patrick Leahy, D-Vt., one of S.618s sponsors, added that 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.

Sen. Leahy said a mouthful. The fact is that no one has introduced a shred of evidence that insurers conspired among themselves to concoct a diabolical scheme to cheat homeowners out of legitimate wind claims and dump all the bills on the National Flood Insurance Program. Yes, there has been evidence introduced that some individual claims might have been mishandled–perhaps intentionally so. But a mass conspiracy?

And is the industry's limited federal antitrust exemption keeping anyone from revealing criminal insurer actions? That's not clear at all. When questions about insurer collusion were raised by a House subcommittee last week, Insurance Information President Bob Hartwig testified that “there is no law in the land that allows insurers to conspire to deny claims or jointly set rates.”

At the Judiciary Committee hearing, Iowa Insurance Commissioner Susan Voss backed up Mr. Hartwig's point, testifying that the alleged bad behaviors driving congressional interest are, for the most part, not immune from federal investigation and prosecution under the acts limited antitrust exemption. Speaking on behalf of the National Association of Insurance Commissioners, she warned lawmakers to carefully evaluate the unintended consequences from outright repeal of the exemption.

Will Congress heed such warnings? Or will they listen to J. Robert Hunter, insurance director for the Consumer Federation of America, who urged Congress to unleash the Federal Trade Commission to protect insurance consumers,” arguing that it is high time that insurers played by the same rules of competition as virtually all other commercial enterprises operating in Americas economy.

Frankly, I don't think Congress has the stomach right now to take on the insurance regulatory challenge. There's too much involved, with creation of a new federal bureaucracy required to keep regulatory chaos from breaking out. Plus, politically, despite the personal grudge of one prominent Republican–Trent Lott–I don't think the industry's critics have enough votes to get a federal regulatory bill through a split Senate.

Thus, my advice holds. Just sit tight, keep pointing out the harm that would befall consumers if the antitrust immunity is revoked, and let the wrath of Congress flame out over time.

What do you folks think???

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