The insurance industry should be stripped of its longtime federal antitrust protection because the exemption creates an environment in which carriers can abuse policyholders in individual states, as was demonstrated by mishandling of recent hurricane claims, two senators from storm-ravaged areas testified last week.

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 S.618, “The Insurance Industry Competition Act of 2007,” 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 the successful recovery” of Louisiana from Hurricanes Katrina and Rita.

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 added.

Sen. Lott called the industry's Katrina claims-handling “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–State Farm–as the result of his insurance claim for hurricane damage to his home.

“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,” said Judiciary Committee Chairman Sen. Patrick Leahy, D-Vt., one of S.618's sponsors.

But an insurance industry representative defended the 1945 McCarran-Ferguson Act's antitrust exemption as good for consumers and 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, Marc Racicot, president of the American Insurance Association and former Montana governor, defended the industry and made clear it is united in opposing S.618.

Mr. Racicot, answering a question from committee member Sen. Orrin Hatch, R-Utah, said that 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.”

“The more competition, the better,” he added, 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.”

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

However, 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 the proceedings–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, 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.

Sen. Landrieu also has authority to call hearings on the issue herself. She now heads the Subcommittee on Disaster Recovery, part of the Senate Homeland Security and Governmental Affairs Committee.

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.”

However, 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.

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

Ms. 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,” she said.

Ms. Voss also noted that 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,” she said.

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

The FSR document noted that last June, Illinois Commissioner Michael McRaith testified in opposition to McCarran repeal, in essence saying state regulators and attorneys general were on the job and not in need of federal assistance.

“However, this morning Iowa Commissioner Susan Voss struck a far more 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 document said. The FSR now has a number of insurance industry members and is a strong advocate of an optional federal charter.

Sen. Patrick Leahy, D-Vt.

Chair, Senate Judiciary Committee

Special Reports /

Senators Advocate Stripping Away Insurers' Federal Antitrust Exemption

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