Repealing the insurance industry's limited antitrust exemptionwould actually cause more harm than good for consumers, accordingto an analysis released last week at the National Association ofMutual Insurance Companies' annual convention.

“If policymakers repeal McCarran, consumers will suffersubstantial negative consequences resulting from a combination ofweakened competition in the insurance industry and a myriad ofregulatory, legal and operational problems generating costs thatconsumers must ultimately bear,” the report said.

It further notes that small and new insurers would be especiallyharmed by such a move, because they “have less in-house data toanalyze than do large insurers…If these companies were forced toexit insurance markets due to increased costs of estimating losses,consumers would have fewer choices and markets would not be ascompetitive.”

The analysis–conducted by Lawrence Powell, chair of insuranceand financial services at the University of Arkansas in LittleRock, with a Ph.D. in risk management and insurance from theUniversity of Georgia–was as much an exercise in helping to definethe exemption as much as advocating for it to be maintained.

“We wanted to speak to the appropriateness of McCarran,” hesaid, characterizing the analysis as “an attempt to say whatMcCarran doesn't do and what it does.”

Mr. Powell's analysis found that insurance markets are generallycompetitive, but would become less so in the event theMcCarran-Ferguson exemption was repealed. “Without it, prices wouldgo up and availability would go down,” he said, explaining thatsmaller companies without the resources to gauge risk and setprices would increasingly be unable to compete.

Additionally, he said, other efforts involving multiple insurersacting together could be affected, he noted–such as multipleinsurers combining to provide coverage for large risks, or evenstate residual markets or guaranty funds.

While the McCarran-Ferguson exemption is an important tool forthe insurance industry, Mr. Powell said there are areas in whichthe market could be improved. However, he said doing so should comevia regulation, and should focus on increasing competition and“allowing market forces to work.”

A key aspect of this, he said, would be to allow for greaterunderwriting and ratemaking freedom for insurers.

Much of the discussion about repealing the exemption hassurfaced in the aftermath of Hurricane Katrina, according to RobertDetlefsen, vice president of public policy for NAMIC, and Mr.Powell noted that the actions of lawmakers have been similar afterprevious catastrophic events.

The problems, he said, “are always related to losses,” but inresponse lawmakers and others generally impose conditions onunderwriting and ratemaking. “Why not address losses?” he asked,noting that measures such as better building codes or othermitigation efforts could be implemented.

It is possible many current industry practices could continue inthe absence of the exemption, he acknowledged, since proceduresthat do not harm consumers are not considered antitrustviolations.

However, he said, doing so would involve going through majorlegal tests of every joint action, which would carry “huge legalcosts” for insurers. Additionally, he noted, removing the exemptionwould “open the door to private actions.”

“We've already got McCarran,” he said, “and we've had it for 62years.”

The limited antitrust exemption was established by theMcCarran-Ferguson Act, passed in 1945 in the wake of a U.S. SupremeCourt decision ruling that insurance should be consideredinterstate commerce, subject to federal regulation.

Mr. Detlefsen said the analysis had its genesis at a NAMICpublic policy conference held earlier this year, where membersdecided which subject they would like to see examined. TheMcCarran-Ferguson debate, he said, “was very salient at the time,and I think it continues to be.”

Mr. Detlefsen said that NAMIC considered a number of optionswhen deciding how the study should be conducted and by whom.

While any number of experts from organizations and “think tanks”were available, he said NAMIC wanted to ensure the analysis wasconducted by someone independent from the industry but with theexpertise needed to give the analysis credibility.

“We wanted a university scholar who specializes in insurance,”he said, noting that NAMIC had examined Mr. Powell's earlierpublications and spoke with insurance professionals who werefamiliar with his work. “All the stars kind of aligned for us,” hesaid.