Will Congress strip the insurance industry of its cherishedantitrust exemption to punish carriers for allegedly cheatinghomeowners on Hurricane Katrina claims? And if they do pull the rugout from under the industry, what difference would it make? Infact, wouldn't such a hasty overreaction do more harm than good?Those were just a few of the critical questions haunting industrylobbyists as they were dragged into the harsh glare of the CapitolHill spotlight earlier this week.

This past Wednesday, the Senate Judiciary Committee held a hearingon The McCarran-Ferguson Act: Implications of Repealing theInsurers Antitrust Exemption. The point was to consider thepotential ramifications of a bill, S.618, The Insurance IndustryCompetition Act of 2007, that would repeal the industry's limitedfederal antitrust immunity under the 1945 McCarran-FergusonAct.

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

Will such practical considerations sway lawmakers into behavingrationally and keeping the valuable exemption intact when they areon the warpath over a relatively small number of disputed Katrinaclaims? That's the billion-dollar question.

As reported by our Washington Editor, Dave Postal (clickhere for the full news story), Sen. Mary Landrieu, D-La.,pleaded with the Judiciary Committee to do something to counterwhat she characterized as the deep threat the current insuranceenvironment poses to the successful recovery of Louisiana fromHurricanes Katrina and Rita.

Senate Minority Whip Trent Lott, R-Miss.–who sued State Farm torecoup alleged wind damage to his home in Katrina after collectingon his federal flood policy–said the industrys claims-handling inthe monster storm was reprehensible, charging that one big reasonwhy insurers have gotten away with allegedly bad behavior is thatMcCarran-Ferguson has allowed the industry for more than sixdecades [to be run] largely beyond the reach of federal competitionlaws.

Fine. Let's say for the sake of argument that Congress, in a fitof pique, repeals the antitrust exemption and turns the dogs of theFederal Trade Commission and the Justice Department loose oncarriers. Will that change the circumstances that led up to theflood versus wind claims disputes in the Gulf States? Frankly, eventhose pushing the legislation don't know.

In her written testimony, Sen. Landrieu was honest enough toadmit her ignorance, and reveal that she hopes to spur anexamination with this bill that will get to the bottom of theproblem. Will repeal of McCarran-Ferguson solve the problems weface in the Gulf? I am not sure that I know the answer to thatquestion, she wrote. “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.

Senate Judiciary Committee Chairman Patrick Leahy, D-Vt., one ofS.618s sponsors, added that the bottom line is right now we do notknow what anticompetitive acts insurers may be engaging in becausethe antitrust immunity insurers enjoy acts as a curtain that hidestheir activity from federal antitrust authorities.

Sen. Leahy said a mouthful. The fact is that no one hasintroduced a shred of evidence that insurers conspired amongthemselves to concoct a diabolical scheme to cheat homeowners outof legitimate wind claims and dump all the bills on the NationalFlood Insurance Program. Yes, there has been evidence introducedthat some individual claims might have been mishandled–perhapsintentionally so. But a mass conspiracy?

And is the industry's limited federal antitrust exemptionkeeping anyone from revealing criminal insurer actions? That's notclear at all. When questions about insurer collusion were raised bya House subcommittee last week, Insurance Information President BobHartwig testified that “there is no law in the land that allowsinsurers to conspire to deny claims or jointly set rates.”

At the Judiciary Committee hearing, Iowa Insurance CommissionerSusan Voss backed up Mr. Hartwig's point, testifying that thealleged bad behaviors driving congressional interest are, for themost part, not immune from federal investigation and prosecutionunder the acts limited antitrust exemption. Speaking on behalf ofthe National Association of Insurance Commissioners, she warnedlawmakers to carefully evaluate the unintended consequences fromoutright repeal of the exemption.

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

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

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

What do you folks think???