Insurers Anti-Trust Exemption Questioned

Insurers Anti-Trust Exemption Questioned

By Matt Brady

NU Online News Service, Nov. 16, 8:46 p.m. EDT, Washington?The head of a senate panel examining insurance brokerage misbehavior said the insurance marketplace's exemption from federal anti-trust law may need reexamination.[@@]

Sen. Peter Fitzgerald, R-Ill., also suggested that the Federal Trade Commission and other agencies should have some oversight of the insurance business.

Mr. Fitzgerald who chairs the Senate Governmental Affairs Subcommittee on Financial Management, the Budget, and International Security made his comments during a hearing focusing on the insurance industry investigation being conducted by New York Attorney General Eliot Spitzer and other state regulators,

Mr. Spitzer's investigation with the New York Insurance Department has led to guilty pleas by five insurance executives and civil suits against Marsh & McLennan Companies, parent of the world's largest broker Marsh Inc., and Universal Life brokerage.

The MMC suit charges Marsh rigged bids, inflated prices and steered unwitting clients to insurers who made payoffs to them disguised as fees and commissions.

The insurance industry is currently exempted from anti-trust laws under the McCarran-Ferguson Act.

Sen. Fitzgerald said states, in regulating insurers, may not have the investigative power that the federal government could wield.

"The system of state regulation has worked well for many purposes," he said. "But state regulation purporting to govern global conduct may not always perfectly detect the abuses of daunting market power.

"I believe it is time to revisit the antitrust exemption of the McCarran-Ferguson Act, and to make clear that vigorous federal antitrust enforcement can and will reach the kind of anticompetitive conduct on the part of insurance brokers alleged in Attorney General Spitzer's lawsuit."

Sen. Fitzgerald also expressed dismay with a 1980 federal law prohibiting the Federal Trade Commission and other federal agencies from investigating the insurance industry, saying that doing so blinded the government to the conditions that led to the brokerage fee scandal.

"Declaring the FTC categorically unsuited even to peer at the insurance industry ignores the reality of national, indeed global, insurance markets, increasing consolidation in some market segments, and surges of centralized coercion that may not readily appear on the regulatory radar of any single state," he said.

"If we profess to favor free markets and other robust competition, then we must equally favor their civilizing predicates: antitrust law and transparency."

Sen. Fitzgerald said that anti-trust provisions are most needed in businesses with large market concentrations, noting that the two largest brokerages, Marsh & McLennan Companies and Aon, control roughly 70 percent of the large commercial insurance market.

"I believe it is no coincidence that Attorney General Spitzer first sued the largest market player in insurance brokerage," the senator said.

"And I believe it is no coincidence that when Attorney General Spitzer first investigated contingent commissions pursuant to his vast powers under New York's Martin Act, he appears to have discovered anticompetitive -- and even criminal -- abuses orchestrated not by just any random insurance broker, but an insurance broker that controlled 40 percent of its target market."

There seemed to be little opposition to Sen. Fitzgerald's view, although the supposition that only large firms engage in the types of practices being uncovered was questioned.

"You don't have to be real large to engage in the practices found by Mr. Spitzer," Gregory V. Serio, New York superintendent of insurance, told the panel. However, Mr. Serio added that any federal muscle that could be added to an investigation of the insurance industry would likely prove helpful.

"Whether it's the FTC or the GAO [General Accounting Office], the opportunity for the federal government to investigate the insurance industry is not necessarily a bad thing."

Congress, he said, has already become a "regular partner" in industry issues. He cited the example of the recent effort to extend and reform the Fair Credit Reporting Act and the current efforts by house Financial Services Chairman Mike Oxley, R-Ohio, and Rep. Richard Baker, R-La., to reform the state-based regulatory system.

Mr. Spitzer himself also endorsed the idea of giving the federal government the power to investigate the industry, although he noted he could not support any amendment to McCarran-Ferguson that would preclude the states from undertaking their own investigations.

However, he said he would like, "the additional scrutiny Congress can provide. Their investigative power is enormous."

Albert R. Counselman, president and CEO of Baltimore-based brokerage Riggs, Counselman, Michaels & Downes, Inc. and representing the Council of Insurance Agents and Brokers, said that the group has no opposition to changing the law to explicitly state that brokers have no anti-trust exemption because the CIAB has consistently believed that that was already the case.

"We believe that brokerages are subject to anti-trust law," he told the panel. Asked by Sen. Fitzgerald if this meant that the federal government could file a lawsuit against Marsh & McLennan under anti-trust law, Mr. Counselman replied that he thought "that's conceivable."

Mr. Counselman's response prompted Sen. Fitzgerald to say that, "maybe this is something that the Justice Department should look at," adding again that he believes that much of the brokerage fee scandal, "would not have happened if there were more competition at the upper level."